U.S. Treasury yields reach the highest since 2007… Concerns over federal government shutdown increase

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Recorded 4.542%… Breaking record in 2007 (4.57%)
Concerns about a shutdown on the 1st of next month… Also pay attention to the PCE announcement

Amid growing concerns about a U.S. federal government shutdown, U.S. Treasury yields have hit their highest since 2007.

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According to CNBC on the 25th (local time), the yield on 10-year US Treasury bonds rose more than 10bp (1bp=0.01%) to 4.542%. It is the highest since it rose to 4.57% in 2007.

The yield on 2-year government bonds remained flat at 5.127%.

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Investors considered the economic and interest rate outlook based on the Federal Reserve’s (Fed) announcement of economic indicators and monetary policy expectations last week.

After the interest rate decision on the 20th, the market expects that the Federal Reserve will raise interest rates once more this year and cut interest rates only twice in 2024, which is less than previously expected.

For this reason, investors are predicting that high interest rates will remain in place for longer, and are considering whether additional interest rate increases will be announced by the Federal Open Market Committee (FOMC) in November or December.

The possibility of a federal government shutdown is also expected to affect interest rate increases. If the U.S. Congress fails to agree on next year’s budget by the 30th, the federal government will be shut down from the 1st of next month.

According to the Washington Post (WP), in the event of a shutdown, federal government officials and Department of Defense employees will work without pay. Some national parks and museums are closed, and airport services are also disrupted.

Global credit rating agency Moody’s warned on this day that the U.S. federal government shutdown would have a negative impact on the country’s credit.

Investors are paying attention to the July housing price index and August personal consumption expenditure price index (PCE), which will be announced on the 26th and 29th, respectively. PCE is the Fed’s preferred inflation indicator.

Source: Donga

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