US 30-Year Yields Hit Highest Since 2002 as Weak Data Reshapes Fed Rate Expectations
Key Takeaways
- •US job openings came in at 7.079 million versus the 7.225 million forecast, and September consumer confidence dropped to 81.9, the weakest reading since 2014.
- •The 30-year Treasury yield rose 3 basis points to 5.59%, reaching its highest level since 2002.
- •Market odds of an October Fed rate hike fell to 50/50 from 64%, with Fed's Williams indicating one more hike this year is likely enough while remaining data dependent.
- •The US offered up to 40 million barrels from the Strategic Petroleum Reserve, pushing WTI down $3.41 to $89.19.
- •Gold gained $56 to $4,169 and the S&P 500 fell 0.1%, with attention shifting to the upcoming US PCE and GDP releases.
A series of weaker-than-expected US data releases pushed back firmly against the "accelerating economy" theme that had driven markets last week, turning a quiet start into a livelier session on Tuesday.
Data Disappointments
The JOLTS report showed US job openings at 7.079 million, below the 7.225 million estimate. September US consumer confidence slid to 81.9, well short of the 89.2 expected, a sharp decline to the lowest reading since 2014. The July S&P CaseShiller 20-city house price index rose 2.5%, ahead of the 2.2% forecast, while Canada's July GDP came in flat at 0.0%, in line with expectations. Job openings and consumer sentiment are among the most closely watched gauges of labor demand and household mood, and readings this soft tend to feature prominently in Fed policy debates.
Long End Hits Generational High
Treasury yields were rising again early in the session, with the 30-year climbing 3 basis points to 5.59% — a generational high and the highest level since 2002 — in a particularly problematic move. Long-dated Treasury yields serve as reference rates for mortgages and corporate borrowing, which is why multi-decade peaks attract attention well beyond bond desks. The front end was later weighed down by comments from Fed officials.
Fed and BoE Commentary
The Fed's Williams said he thinks one more hike this year is likely enough, followed almost immediately by a reminder that he remains data dependent. In any case, market odds for an October hike have fallen to 50/50 from 64%, a repricing that shows how directly rate expectations track the incoming data flow. Goolsbee warned that 5-1/2 years above target is "playing with fire." The Fed's Barr expects GDP growth to pick up in the second half of the year, while the Fed's Musalem touted having a framework as backbone of the communication strategy. At the Bank of England, Taylor questioned whether a single "insurance hike" would be seen as the start of a series.
SPR Release Weighs on Oil
The bigger news in the oil market was the US offering up to 40 million barrels from the Strategic Petroleum Reserve, sending crude to the lows of the day. The reserve is the US government's emergency crude stockpile, and offerings of this size put additional barrels directly into the market. WTI crude oil fell $3.41 to $89.19. Iran headlines were more muted, but there were better signs that negotiations are continuing with mediators still involved.
Commodities, FX and Equities
Deutsche Bank sees a copper crunch coming, and says $10/lb may be needed to fix it. Copper's reach across construction, power grids and manufacturing means supply-and-demand calls of this kind are closely watched well beyond commodity markets. Gold rose $56 to $4,169. In currencies, the Japanese yen led while the New Zealand dollar lagged. The S&P 500 was down 0.1%. Despite the shift in rate expectations, the US dollar held up.
What's Next
Tomorrow brings US PCE and GDP data — with the PCE price index serving as the Fed's preferred inflation gauge — in what will be another test of the economic narrative.
