US Treasury yields surged to their highest levels in 16 years following the release of minutes from the July FOMC meeting. The minutes made clear that the Fed continues to lean in a hawkish direction despite some signs that the economy is decelerating, softness in the labor market, and moderation in inflation. Essentially, it’s another sign that rates will remain ‘higher for longer’ and that any pivot in Fed policy is nowhere near. 

In the minutes, the Fed said that there were ‘significant upside risks to inflation, which could require further tightening of monetary policy’. Following the release, yields on the 10-year Treasury reached 4.3% which is the highest level since before the housing collapse and Great Recession in 2007. 

In addition to the Fed, there are other factors that are contributing to selling pressure in Treasuries such as foreign governments reducing their holdings and expectations of supply hitting the market in the coming months due to the federal government’s funding needs.

Already, equity markets started to wobble and give back some of the gains made in recent months. Previous breakout in yields have resulted in sharp sell-offs in equities, and there is a risk that it could reignite the crisis in regional banks.

Finsum: US Treasury yields shot up to their highest level in 16 years following hawkish minutes from the July FOMC meeting. Other factors are also contributing to Treasury weakness, and it’s worth watching if it will result in damage to parts of the economy.