Thirty-year Treasury yields climb to their highest since 2004 on strong PMIs and Fed hike talk

The two dates in Thursday's bond move do not line up. The 2-year note is the maturity most tied to the next few Fed meetings, and it touched only its highest level since 2023 ^[2]. A day earlier, the 10-year had passed every level of the last 19 years ^[1]. That puts the gap between 10-year and 2-year yields wider now than on any day in 2023 when the 2-year stood at or above today's level ^[1].

A scare about one more hike would, on its own, push the 2-year hardest. Measured against each maturity's own history, this move has gone further at the long end, and there are three plausible readings of it. One is inflation: investors want more to hold decade-long paper because they doubt a single hike settles the matter. Another is growth. S&P Global's flash manufacturing and services gauges were the highest in more than four years ^[3], and faster nominal growth lifts long yields with or without the Fed. The last is noise, since the 10-year's jump was its largest one-day gain in almost 18 months ^[1] and a one-day move on flash data can unwind. I think it is the first, and growth is the serious counter-thesis. If the 2-year climbs past its 2023 levels and the gap to the 10-year narrows, the move was about the Fed after all.

At least one chief executive has stopped planning for relief. McDonald's CEO Chris Kempczinski told CNBC he isn't expecting traffic to rebound or inflationary pressures to ease ^[8]. "We need to stop talking about that being a difficult environment, and just say that is the environment," he said ^[9]. A company planning that way is not budgeting for a traffic recovery. McDonald's shares closed nearly 5% lower on Wednesday, their biggest one-day loss in more than a year ^[10].

Both officials whose remarks fed the move hedged. CNBC's account reports fears of a hike but does not include futures-implied odds or the yield levels. Fed Governor Michael Barr said the central bank would likely need to make "further policy adjustments" ^[4]. New York Fed President John Williams said on Thursday that "it's likely that another rate hike may be appropriate by the end of the year" ^[5]. Williams put a "may" inside a "likely" and gave the end of the year as his window, while the worry CNBC described was a hike in October ^[3].