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Bond Report: 10-year Treasury yield hits highest in month as Fed’s Barkin says officials will do what it takes to fight inflation

U.S. bond yields rose Friday morning as traders assessed how high Federal Reserve officials might take interest rates to combat persistent price gains.

What’s happening

The yield on the 2-year Treasury

was marginally higher at 3.234% versus 3.233% late Thursday.

The yield on the 10-year Treasury

rose to 2.967% versus 2.879% on Thursday afternoon.

The yield on the 30-year Treasury

advanced to 3.206% from 3.139% on Thursday.

What’s driving markets

Richmond Fed President Thomas Barkin became the latest Fed official to weigh in on the likely path forward for central-bank policy, with remarks made on Friday. Barkin reiterated that the central bank will do what it takes to return inflation back to its target, though this will not happen immediately, according to Reuters. The regional Fed bank president also said that “returning to normal does not require a calamitous drop in economic activity.”

Divergent comments from a handful of Fed officials on Thursday had left investors unsure of which way policy makers are leaning with their next move. In particular, St. Louis Fed President James Bullard told The Wall Street Journal that he’s leaning toward supporting another 75 basis point interest rate hike in September. Meanwhile, his colleague Mary Daly at the San Francisco Fed told CNN International that the U.S. central bank is trying to achieve a balancing act and doesn’t want to “under-do” or “overdo” rate hikes.

Friday’s U.S. economic calendar is on the light side, with no major data releases. Next week’s Federal Reserve Jackson Hole economic symposium will offer an opportunity for Fed Chair Jerome Powell to outline his thoughts on where interest rates may go.

Ten- and 30-year Treasury yields have mostly crept higher this week, even after factoring in modest declines on Thursday, as investors attempt to gauge the health of the economy.

U.S. economic data released Thursday showed the jobs market remains healthy, and the Philadelphia-area manufacturing gauge wasn’t as bad as the New York-area report released on Monday, although the housing sector has reeled from higher mortgage rates.

In Europe, inflation data showed prices continue to rise in developed countries. German producer prices shot up 37% year-over-year for July, a record increase, according to data released Friday.

What analysts are saying

“Even the Fed appears to be having a hard time making sense of the data as policy makers are having doubts about what the pace of rate hikes should be going forward,” said Raffi Boyadjian, lead investment analyst at XM.

“Fed fund futures currently point to a slightly higher probability of a 50-bps hike in September than a 75-bps one. But those odds could change next week when Fed officials will gather in Jackson Hole, Wyoming, for their annual symposium where Chair Jerome Powell is set to give his first remarks since the July FOMC meeting and the first since the soft CPI report.”

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