10-Year Treasury Yields Hit 8-Month High Amid Strong Economic Data and Inflation Concerns

Benchmark 10-year U.S. Treasury yields surged to their highest levels in eight months on Tuesday, fueled by stronger-than-expected economic data and an average Treasury auction. The developments reflect a complex economic landscape, marked by robust activity and persistent inflation pressures.
Key Economic Indicators
- Job Openings: U.S. job openings in November rose to 8.098 million, exceeding forecasts of 7.7 million and surpassing October’s figure of 7.839 million.
- Services Sector: Activity in the services sector accelerated in December, with a measure of input prices reaching its highest in nearly two years, underscoring elevated inflation.
- Upcoming Labor Market Data: Markets are now eyeing Friday’s December employment report, which is expected to show 160,000 new jobs added.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, noted that the data signals a re-accelerating economy, though seasonal factors might be amplifying the strength.
Treasury Yield Movements
- 10-Year Yields: The benchmark 10-year yield climbed 7.1 basis points to 4.687%, peaking at 4.699%, its highest since April 26, 2023.
- Yield Curve: The spread between two-year and 10-year notes steepened by four basis points to 39.3 basis points, marking the steepest curve since May 2022.
- 30-Year Yields: Long-term yields also rose, with the 30-year yield hitting 4.926%, its highest since November 2023.
Treasury Auctions and Market Dynamics
The Treasury auctioned $39 billion in 10-year notes, which sold at a high yield of 4.680%, with demand at 2.53 times the supply. This followed soft demand for Monday’s $58 billion three-year note sale. A $22 billion auction of 30-year bonds is scheduled for Wednesday.
Heavy corporate debt issuance this week has further weighed on Treasury markets, contributing to rising yields despite recent Federal Reserve rate cuts totaling 100 basis points since September.
Market Sentiment and Policy Implications
Dan Mulholland, head of rates trading at Crews & Associates, highlighted that the market is pricing a higher terminal rate for Fed policy, hovering around 4%, just 25 basis points above the current federal funds rate.
The market is also factoring in fiscal policies under the incoming administration, including potential tax cuts, deregulation, and tariffs, which could spur growth while adding to inflationary pressures.
Fiscal Concerns and Long-Term Outlook
The worsening U.S. budget deficit and expectations of increased long-term debt issuance are driving higher yields at the long end of the curve. Analysts warn that the fiscal trajectory could elevate term premiums as investors demand higher compensation for holding longer-dated securities.
“The market is building more term premium into the long end to account for the fiscal situation, the deficit, and potentially a lot more issuance in the long end of the curve,” Mulholland explained.