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US Treasury rates reached a four-week high, scaring the stock market; these are the five main factors pushing up bond yields

Concerns about increased inflation and growth caused US Treasury rates to rocket to four-week highs and the two-year/10-year yield curve to reduce its inversion to its tightest gap in two weeks.

The benchmark US 10-year yield increased from 4.471% at the end of last week to 4.623% on Wednesday. The US 10-year yield has increased by 30 basis points in only two weeks. The US rates on two- and 30-year bonds reached their highest points since early May.

Bond rates have reached their highest level in a month due to growing skepticism over the US Federal Reserve’s planned interest rate decreases in the face of positive economic data.

The global hazardous asset market has also been rattled by the increase in US Treasury rates. Sharp drops were seen in the US stock market, and throughout the previous several sessions, the equities markets in Asia and India also saw similar movements.

The following are the main causes pushing up US Treasury yields:

feeble debt auction
Following another lackluster debt auction on Wednesday, Treasury rates surged as buyers showed comparatively little interest and insisted for yields over the market rate. According to Reuters, the $44 billion in US seven-year debt that was sold produced a high yield of 4.65%, which was greater than the anticipated rate at the time of the bid deadline and may indicate that buyers paid more for the note.

Demand is gauged by the bid-to-cover ratio, which was 2.43 this month compared to 2.48 last month and averaged 2.55.

Concerns about the future demand for government debt were raised by the mediocre US two-year and five-year note auctions on Tuesday, which were followed by the drab sale of the seven-year note.

Concerns about rate cuts
A further decline in betting on rate cuts in the greatest economy in the world was spurred by a weak debt auction, good economic statistics, and hawkish remarks from US Fed officials.

According to CME FedWatch Tool, the futures market is only pricing around 31 basis points (bps) of rate reduction this year, down from over 50 bps earlier in the month. Additionally, bets on a rate cut in September have decreased to 47% from 58% the previous week.

The minutes from the most recent meeting of the Federal Reserve, which were made public last week, also revealed a lack of consensus among decision-makers over whether to loosen monetary policy.

Astute US Federal Reserve Officials Neel Kashkari, the president of the Minneapolis Federal Reserve Bank, highlighted worries about the timing of rate decreases in his remarks, which caused rates to rise.

In an interview, Kashkari said that the Fed should hold off on raising interest rates until there has been a noticeable improvement in inflation and that “many more months of positive inflation data” are required before he would become confident enough to start relaxing.

Beige Book Analysis
According to the US Federal Reserve’s Beige Book study, economic activity rose at a “slight or modest” pace in most areas between early April and mid-May. However, businesses were more pessimistic about the future as a result of declining consumer demand, even as inflation continued to rise somewhat.

US Consumer Trust
In May, US consumer confidence surprisingly rebounded after declining for three consecutive months. According to the Conference Board, the consumer confidence index, which gauges how confident Americans are about the state of the economy and their outlook for the next six months, increased to 102.0 this month from an upwardly revised 97.5 in April. Reuters surveyed economists, who predicted the index would drop from the previously reported 97.0 to 95.9.

Investors now watch for more clues about the Federal Reserve’s next policy move in the form of the US Core Personal Consumption Expenditures (PCE) price index data, which is released on Friday, and the May labor report, which is released a week later.

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