U.S. 10-year Treasury yields break August high on Fed rate hike hopes, heading towards June high

The 10-year US Treasury yield broke above its August high of 1.63 percent by several basis points Monday, following Fed official Rosengrens speech that suggested that he favours a prompt rate hike. Also, we foresee that it will break June high of 1.74 percent on Fed rate hike expectations.

The yield on the benchmark 10-year Treasury note rose more than 2 basis points to 1.691 percent, the yield on 5-year bond bounced 1 basis point to 1.234 percent and the yield on short-term 2-year note also climbed 1 basis point to 0.798 percent by 12:00 GMT.

Bloomberg’s implied portability for a rate hike increased to 30 percent for the September FOMC meeting, up from 25 percent calculated at the end of last week.

Moreover, the Boston Federal Reserve President Eric Rosengren (a voter in 2016) said that he sees a reasonable case for gradual rate increases and a failure to continue the path of gradual rate normalisation could shorten the recovery; history shows the difficulty of slowing the economy after waiting too long to tighten policy.

He further added that payrolls growth has been somewhat choppy of late, but the United States economy is performing quite well, has proven resilient to international risks, and is at/close to full employment.

Additionally, Fed Governor Daniel Tarullo, speaking on CNBC, said that he will not comment on the timing of Fed rate increases, but wouldnt foreclose the possibility of a rise this year. Also, would want evidence that inflation will rise and can be sustained at 2 percent and answer to low-rate risks isnt necessary to hike. On balance his remarks seem to be on the side of holding off from tightening policy.

Dallas Fed President Robert Steven Kaplan said that the case for a rate hike has strengthened in the last few months, but the Fed can afford to be patient because neutral rates are low. He further added that low rates create distortions/imbalances and the Fed will debate this over the next few months. The ISM reports a little more negative than expected and does not think the economy is overheating, he added.

Meanwhile, the S&P 500 Futures traded 7.25 points lower at 2,108.75 by 12:00 GMT.