10-year, 30-year Treasury yields end at November highs after IMF upgrades U.S. growth forecast

By Vivien Lou Chen and Jamie Chisholm

Long-term Treasury yields finished at new five-month highs on Tuesday, after Federal Reserve Chair Jerome Powell indicated that policy makers will likely need to delay any interest-rate cuts and the International Monetary Fund projected faster economic growth for the U.S. this year.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y rose 2.6 basis points to 4.961%, from 4.935% on Monday. It briefly broke above 5% in intraday trading.The yield on the 10-year Treasury BX:TMUBMUSD10Y climbed 3 basis points to 4.657%, from 4.627% on Monday. Tuesday's level is the highest since Nov. 6, based on 3 p.m. Eastern time figures from Dow Jones Market Data.The yield on the 30-year Treasury BX:TMUBMUSD30Y rose 1.8 basis points to 4.757%, from 4.739% on Monday. Tuesday's level is the highest since Nov. 9.

What drove markets

On Tuesday, Federal Reserve Chair Jerome Powell said recent data is not giving policy makers the confidence they need that inflation is set to come down sustainably toward their 2% annual target. His remarks implied that more time is needed before Fed officials can lower interest rates.

Separately, the IMF said it expects U.S. growth to come in at a 2.7% annual rate this year, higher than it had forecast in January and last October. That growth is also bolstering the outlook for the global economy.

Data released earlier on Tuesday showed that construction of new homes fell 14.7% in March as builders scaled back on new projects, while U.S. industrial production rose modestly for the same month.

Tuesday's data followed a series of hotter-than-expected U.S. inflation reports, along with stronger-than-forecast jobs and retail-sales data, that have forced the market to recalibrate the likely trajectory of Fed rate cuts. No rate cut is expected until possibly September, according to the CME FedWatch Tool.

See also: Inflation risks and Middle East tensions leave traders and investors 'waiting for the next shoe to drop'

Adding upward pressure to bond yields globally is data that showed China's economy grew by a greater-than-expected 5.3% annual pace during the first quarter.

What analysts are saying

"The ongoing selloff in Treasuries is intensifying, fueled by yet another indication that the economy is not landing softly, highlighted by the strong retail-sales prints," said Stephen Innes, managing partner at SPI Asset Management.

"This poses a risk of further repricing of the Fed's policy path and the withdrawal of more anticipated rate cuts, suggesting a shallower cycle and increasing the probability of no rate cuts in the foreseeable future. Investors are even growing increasingly anxious amid the possibility that we may not have reached the peak of interest rates in the U.S. yet," Innes said.

-Vivien Lou Chen -Jamie Chisholm

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04-16-24 1549ET

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