10-year Treasury yield rebounds back above 4%

The 10-year Treasury yield, a benchmark for mortgages and car loans, jumped back above 4% on Monday amid stronger labor market readings and despite the start of a Federal Reserve rate-cutting campaign last month.

The 10-year yield was up about 2 basis points to 4%, it’s highest since early August and a big turnaround from its 2024 low of around 3.58% reached a little more than a month ago. The yield on the 2-year Treasury was up over 6 basis points to 3.99%. Yields move inversely to prices. One basis point equals 0.01%.

Treasury yields surged on Friday as a better-than-expected September jobs report lowered expectations that the Fed would do another supersized half-point cut like it did on September 18. Nonfarm payrolls grew by 254,000 in September, well ahead of the 150,000 estimated by economists polled by Dow Jones, data released Friday showed.

The CME Group’s FedWatch tool indicates that traders are now pricing in a 91% chance of a quarter percentage point rate cut at the central bank’s next meeting in November.

“In the week ahead, the U.S. rates market will continue to debate the impact on monetary policy from the surprisingly strong payrolls report,” wrote Ian Lyngen, head of U.S. Rates Strategy at BMO Capital Markets. “If anything, the employment update suggests that the Fed might be revisiting the prudence of cutting in November at all – although a pause is not our base case; we still see a 25 bp cut.”

Investors believe the rebound in rates is due mostly to a resetting of rate-cut expectations. To be sure, rising oil prices due to geopolitical tensions in the Middle East and a stimulus plan in China are also raising some concern about inflation reigniting, perhaps driving some investors away from bonds and raising yields. September’s CPI reading is out on Thursday.

Speeches are due Monday from Fed officials Neel Kashkari, Raphael Bostic, Michelle Bowman and Alberto Musalem. The 10-year Treasury auction will be on Wednesday.

The Fed next decides on rates on November 7, two days after the U.S. election. The October jobs report will be out the week before, on Nov. 1.