The recent hotter than expected jobs data sent the Dow Jones Industrial Average down over 600 points on Friday, October 7. That day the 10-year Treasury note yield rose to 3.88% and reached a multiyear high of 4.03% on October 14 (source; Bloomberg 10/18/22). Investors continue to react negatively to strong jobs data that will cause the Federal Reserve to continue its aggressive interest rate increases to battle inflation.
So, what drives investor interest in the 30-year auction and longer maturities? They might be measuring the impact of present day Fed rate and monetary actions on future economic activity and inflation. Some strategists see the 2-10 year curve inversion signaling a recession. The 10-year Treasury yields 2.92% while the 2-year Treasury yields 3.14%, today (source: Bloomberg 7/13/22). The curve is inverted the most since August of 2000 (source: ibid).
“This is not the kind of inflation from the 1960s and 70s” (Chicago FED president, Charles Evans 4/11/22). During that event before the Detroit Economic Club, Evans contended that the current spurt in prices is temporary, rather than sustaining and that inflation will revert back to pre-pandemic levels in a year or two (source: MarketWatch 4/13/22). The chart on page three shows the longer period, five to ten year inflation expectations of surveys by the University of Michigan remain subdued at about three percent.