U.S. Treasury yields climbed on Tuesday to fresh 16-year highs on investor worries that the Federal Reserve will hold interest rates higher for longer after job openings unexpectedly increased in August.
Analysts see further bond weakness until there are clear signs that higher borrowing costs are hurting the economy. Concerns about growing Treasury supply and high oil prices are also reducing demand for U.S. debt.
“The higher-for-longer repricing continues to be the bulk of the move,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York. “There’s certainly worries about supply (and) there’s longer-term worries about oil prices.”
Yields extended their gains after data on Tuesday showed U.S. job openings rose 690,000 to 9.610 million on the last day of August.
The data can be volatile and in August the increase was concentrated in one category, professional and business services, which “calls into question whether or not there’s something strange going on that’s produced the big number,” said Thomas Simons, a money market economist at Jefferies in New York.
That said, “if you’re not going to be so critical and look at it just with an open lens you would see a number that’s really quite strong and a revival in small and medium businesses about how many more people they want to hire,” he added.
This week’s main U.S. economic focus will be Friday’s jobs report for September, which is expected to show that employers added 170,000 jobs during the month.
Benchmark 10-year notes reached 4.806% and 30-year yields hit 4.950%, both the highest levels since 2007.
Technical factors, including a lack of clear support between the 4.5% and 5.0% levels on 10-year Treasury yields have also made investors more cautious about entering the market.
“There is really a technical air pocket between 4.5% and 5.0% in 10s, and that’s what the market right now is testing through ... it’s something else that’s making investors more nervous,” Goldberg said.
Interest rate-sensitive two-year yields were last at 5.150%. They are holding below the 5.202% level hit on Sept. 21, which was the highest since July 2006.
The yield curve between two-year and 10-year yields steepened as far as minus 34 basis points, the smallest inversion since May.
Fed funds futures traders are pricing in only a 46% probability of a rate increase by December, according to the CME Group’s FedWatch Tool.
Atlanta Fed president Raphael Bostic said on Tuesday that with the U.S. economy slowing and inflation falling, there is no urgency for the Federal Reserve to raise its policy interest rate again, but it will likely be “a long time” before rate cuts are appropriate.
He also said the steady rise in long-term U.S. Treasury bond yields has not shown signs of slowing the economy more than would be expected in a typical Fed tightening cycle.
Cleveland Fed leader Loretta Mester said if the current state of the economy holds, she is open to raising interest rates again, potentially at the next policy meeting.
The deal reached by U.S. Congress on Saturday to avert a government shutdown has also reduced safe-haven demand for U.S. government debt this week.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.