Hitting 5% on 10-Year Treasury Yield Looks Near Inevitable — Market Talk

0254 GMT - The 10-year Treasury yield hitting 5% looks more like an inevitability than a forecast, says ING's Padhraic Garvey. Higher real yields remain the biggest driver amid fiscal and wider issuance concerns, but oil prices and inflation expectations factor too. Treasury Secretary Bessent is keen to calm things via long-end buybacks, but that won't override the macroeconomic forces driving interest rates. "A silver lining is we've been here relatively recently [in 2023]," says Garvey, and a 5% yield is no more than a 50bp concession to the top of what ING considers a neutral range. But things could get more sinister if a break above 5% brings 6% into focus. That would be a far tougher for the wider market to stomach, he says. "We're not calling for it. But we're also not not calling for it." Yield is last around 4.969%. ([email protected])0214 GMT - The re-escalation of conflict in the Middle East and its impact on energy prices mean an additional 25 basis point interest rate increase by the European Central Bank should be priced in for December, says ANZ. An increase would take the benchmark deposit facility rate to 2.75%. The ECB will likely favor an incremental approach to tightening over time. Markets are pricing in around a 90% chance that the ECB hikes in October, ANZ notes.([email protected]; X @JamesGlynnWSJ)0156 GMT - Australian government bond yields keep pushing higher, tracking U.S. Treasurys as markets weigh the prospects of higher interest rates amid concerns about elevated oil prices and rising debt. ANZ says the re-pricing in long-end yields reflects expectations of higher-for-longer policy rates, but also markets seeking more compensation to reflect the global combination of large government borrowing requirements, hyperscaler debt supply and greater policy uncertainty. The medium-term outlook for the RBA's official cash rate is one that would see a much higher average rate over 2026-2028 than during most of the post-Global Financial Crisis era characterized by low rates, the bank says. The Australian 10-year yield is above 5.35%, while the U.S. 10-year sits at 4.96%. ([email protected]; X @JamesGlynnWSJ)0138 GMT - Bitcoin slips in early Asian trade. Cryptocurrencies prices are continuing to trade within a narrow range, as traders await fresh signals on the market's direction, FxPro chief market analyst Alex Kuptsikevich says in a note. Traders are eyeing U.S. CPI data due later Friday, which would offer further clues of the Fed's upcoming interest rate decision. Higher borrowing rates tend to weigh on risk appetite, dragging cryptocurrencies. Bitcoin falls 0.55% to $76,841.33, LSEG data show.([email protected])0125 GMT - The week ahead in Australian bond markets will once again be dominated by commentary from senior RBA officials. Chief economist, Sarah Hunter, will speak on Monday. Recently she's been hawkish. On Friday, pretty much all the heavy hitters from the bank will be before parliament. It will be a great opportunity for the bank to further pave the way for an interest rate hike at the end of this month. Deputy Governor Andrew Hauser said this week that the community was "furious" that inflation had remained high for so long. He's likely to get asked about that by parliamentarians.([email protected]; X @JamesGlynnWSJ)0031 GMT - JGBs fall in the morning Tokyo session, tracking overnight price declines in U.S. Treasurys. JGBs and Treasurys tend to move in tandem. Bond yields have spiked higher as oil prices have risen, adding to expectations of tighter monetary policy, NAB's Skye Masters says in commentary. "Fuelling the latter has been hawkish comments from several central bankers over the past 24-48 hours" such as BOJ policy board member Masu, the head of Markets Research says. The ten-year JGB yield rises 5.5 bps to 2.965%.([email protected])0015 GMT - Japanese stocks are lower as fears about the Iran war and rising energy costs have grown. Chip-related stocks are leading declines. Kioxia Holdings is down 5.7%, SoftBank Group is 4.7% lower and Advantest is down 6.0%. Caution ahead of U.S. consumer inflation data due later Friday is also weighing on the market. The dollar is at 154.38 yen, up from Y153.53 as of Thursday's Tokyo stock market close. Investors are closely watching any developments in the Middle East and crude oil prices. The Nikkei Stock Average is down 2.8% at 63458.25. ([email protected]; @kosakunarioka)2353 GMT - Asian currencies consolidate against the dollar in early trade, but may be weighed by safe-haven demand for the greenback. "Higher oil prices and weaker global equities supported the USD," CBA's Kristina Clifton says in a research report. "The USD has been trading like a safe haven during the Middle East conflict," says the senior economist and senior currency strategist. Also, higher oil prices increase risks of "higher global inflation and slower global economic growth, a headwind for the risk-sensitive AUD/USD," Clifton adds. The Australian dollar edges 0.1% higher to US$0.7158, while the U.S. dollar is 0.1% higher at 154.54 yen, according to LSEG data. ([email protected])2341 GMT - Japanese stocks may decline as rising concerns over the Iran war and higher energy costs mount. Nikkei futures are down 2.1% at 63745 on the SGX. Caution ahead of U.S. consumer inflation data due later Friday is also likely to weigh on the market. The dollar is at 154.53 yen, up from Y153.53 as of Thursday's Tokyo stock market close. Investors are focusing on developments in the Middle East and crude oil prices. The Nikkei Stock Average rose 0.2% to 65270.95 on Thursday. ([email protected])2026 GMT - Traders have gotten ahead of themselves in pricing in Bank of Canada rate increases, says the fixed-income team at CIBC Capital Markets. Market pricing for Canada rates now anticipates the BOC lifting its benchmark rate above 3.25%, or the top end of its estimate for neutral. The neutral rate is the estimated level in which rate policy neither adds nor subtracts from growth, and BOC officials believe it is in the 2.25% to 3.25% range. "This is an important new threshold in market pricing," CIBC says, noting there's limited evidence — outside of 2022 — of what happens when the BOC rate goes above neutral. With trade uncertainty heightened and inflation largely fueled by an energy-supply shock, "the path being priced has begun to lose the plot a bit." ([email protected]; @paulvieira)1919 GMT - President Trump's proposed $5,000 dividend payments to Americans, should the GOP keep control of Congress after the midterms, would increase the national debt by $1.85 trillion and fuel higher inflation, the National Taxpayers Union's Brandon Arnold says in a statement. "These dividend payments would worsen, not improve, our affordability challenges," he says. Those payments would paper over the country's economic problems and create conditions that would likely lead the Fed to raising interest rates, Arnold says. "Americans cannot afford more borrowing and another round of out-of-control inflation," he says. ([email protected])1916 GMT - The market appears to be looking past the soft core Producer Price Index readout for August, Fifth Third Wealth Advisors' Chris Osmond says in a note. Despite the weak headline number, there were big jumps for airfares and healthcare, the year-over-year rate accelerated sharply and there were upward revisions to the July level, Osmond says. That all combined to largely neutralize the month-over-month beat, he says. Combined with elevated oil prices and a live Federal Reserve meeting next week, investors are seeing the print as inflationary, Osmond says. The odds of a rate-hike are firming up, sending stocks lower and yields higher, he says. ([email protected])