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

What’s happening

• The yield on the 2-year Treasury TMUBMUSD02Y, 3.233% was up 3.2 basis points at  3.265% versus 3.233% late Thursday. It rose less than 1 basis point for the week. 
• The yield on the 10-year Treasury TMUBMUSD10Y, 2.974% rose 10.8 basis points to 2.987% versus 2.879% Thursday afternoon. That’s the highest since July 20 and the largest one-day gain since Aug. 5, based on 3 p.m. levels, according to Dow Jones Market Data. It rose 13.9 basis points this week and has gained 34.5 basis points over the last three weeks.
• The yield on the 30-year Treasury TMUBMUSD30Y, 3.215% advanced 8.6 basis points to  3.225% from 3.139% on Thursday. That’s the highest since July 8 and the largest one-day gain since Aug. 11. It gained 10.8 basis points this week and 24.9 basis points over the past three weeks.

What’s driving markets

An absence of major economic data releases on Friday had investors focused on remarks made by Richmond Fed President Thomas Barkin, who became the latest Fed official to weigh in on the likely path forward for central-bank policy.

Barkin said that the central bank will do what it takes to return inflation back to its target, even if that means risking a recession. The regional Fed bank president also said that the path of getting inflation under control does not require a steep decline in economic activity, Reuters reported.

Next week’s Jackson Hole economic symposium will offer an opportunity for Federal Reserve Chairman Jerome Powell to outline his thoughts on where interest rates may go.

See: Powell to tell Jackson Hole that recession won’t stop Fed’s fight against high inflation

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.

Ten- and 30-year Treasury yields rose this week, even after factoring in modest declines on Thursday as investors attempted 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.”