Explosive UK Markets Push 10-Year Treasury Yield Near 4%

UK currency and bond market stress push US Treasury yields higher again. The UK’s asset selloff continued today after Chancellor Kwasi Kwarteng doubled down on his upcoming stimulus plans, promising that there is “more to come.” The comments exacerbated already heightened inflation fears and pulled the Sterling to an all-time low, while the 10-year UK gilt yield surpassed 4% for the first time since 2010. Asked whether the volatility in the UK had increased odds of a global recession, US Atlanta Fed President Bostic replied “it doesn’t help.” The 10-year Treasury yield would ultimately end the day dramatically higher, climbing nearly 25 bps to close at 3.92%.

Fed officials remain confident in orderly economic slowdown, ongoing rate hikes into 2024. Collins (Boston), Bostic (Atlanta) and Mester (Cleveland) all delivered remarks that included economic outlooks. Collins and Bostic conveyed positive views on the US economy’s ability to withstand the higher rates needed to tackle inflation, and they see potential slowdowns as being modest. Mester sees benchmark rates rising above 4% and economic growth “well below 2%” as a result. Despite general optimism, the spread between 2-year and 10-year Treasury yields (an oft-cited indicator of looming recession), remained dramatically inverted at -43 bps.

Day ahead. Fed regional Presidents James Bullard and Charles Evans will make public comments tomorrow morning. Durable goods orders and new homes sales data for August will come out at 8:30 AM ET and 10:00 AM ET, respectively.