Every Treasury maturity from seven years out now yields more than 5%

The 2-year at 4.91% is the low end of the curve after this morning, back where it traded in May 2024, four months before the Fed started cutting ^[2]. The 5-year is at 4.99% ^[5]. The 10-year sits 19 basis points above the 2-year ^[1]. For anyone discounting a cash flow, which maturity you pick out of that band barely changes the answer.

S&P's flash composite is about prices as much as growth. Output grew at the fastest rate in over five years, with historical comparisons pointing to annualized growth of around 5% and a 4% gain signalled for the third quarter ^[8]. Input costs rose at the steepest rate in four years, with fuel and transport costs spiking on the month's rise in oil prices ^[9]. Backlogs are climbing on the most severe supply chain bottlenecks in the survey's near-two-decade history if the pandemic is excluded ^[10]. That accumulation of uncompleted orders "also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook", the report said ^[7].

Treasury's offer this morning was up to $6 billion at face value of 20-year and 30-year bonds maturing between February 2047 and February 2056, and the cash it pays will come in under that figure after the haircuts on paper issued when coupons were low ^[11]. Yesterday it took 4.787% to place all $79 billion of 2-year notes, the highest auction yield in two years ^[13]. Against one auction of that size, $6 billion of face value is 7.6% ^[6].

Those auction buyers are the fastest measure of how quickly this moved. The secondary market is 12.3 basis points above where their notes cleared, one day later ^[4]. On $79 billion, at roughly 1.9 years of modified duration, that is about 0.23% of face, or $185 million ^[5]. "Some people are now kicking themselves for having bought too early," Wolf Richter wrote ^[19].

Richter is explicit that the cause is inference: "What exactly causes markets to suddenly get spooked like this is always a form of speculation, so here we go again," he wrote ^[16]. His account covers yields, the PMI and the buyback, and does not report equity or credit prices ^[18].

I would put the weight on the front end rather than the 30-year. The 2-year is the maturity the Fed watches, and Richter wrote that it is "telling the Fed to hike its policy rates pronto and multiple times" ^[15]. If the next PMI walks the price pressure back and the 2-year drifts down from 4.91%, then this morning was about the supply of long paper and the inflation signal was noise.