Treasury yields spike to new highs amid U.S. economic optimism

Aug. 17 (UPI) -- U.S. Treasury yields on Thursday flirted with highs not seen in more than a decade as investors bet the Federal Reserve will need to hike rates again to slow the economy.

U.S. Treasuries, considered safe-haven assets because they enjoy the full backing of the federal government, were on the rise early in the Thursday session, with the 2- 10- and 30-year Treasury yields flirting with 5% gains. The 10-year yield at one point hit its highest mark since 2008.

The rally is supported by ongoing signs that the U.S. economy is expanding, even as the Federal Reserve works to slow growth by way of higher lending rates. Edward Moya, a senior market analyst at broker OANDA, said strong earnings from Walmart was just the latest sign that the U.S. consumer is unfazed by higher prices and higher lending rates.

"With COVID savings still expected to be used over the next couple of months and a lag with how student debt repayments go, confidence in continued business momentum should remain," he said early Thursday. "The Atlanta Fed's estimate of 5.8% looks like it might actually happen, which should keep the Fed standing by its hawkish stance that they might need to do more tightening to combat inflation."

The Federal Reserve Bank of Atlanta raised its estimate for growth in gross domestic product for the third quarter by 0.8%, citing strong industrial production and expansion in personal spending.

The U.S. economy, the world's largest, expanded by 2.4% in the second quarter, according to the latest estimate from the Commerce Department.

Minutes published Wednesday from the U.S. Federal Reserve painted a mixed picture on the forward economic outlook. Payroll gains are robust and while job openings declined to a two-year low, they remain well above pre-pandemic levels.

"Consumer price inflation -- as measured by the 12-month percent change in the price index for PCE -- remained elevated in May, and available information suggested that inflation declined but remained elevated in June," the minutes read.

Labor and wage growth are a particular concern as the Fed tries to dampen demand enough to lower inflation, but avoid the widespread job losses that would come from a dramatic slowdown.

U.S. stock indices were stable early Thursday with the Dow up only around 0.2% as of 9:45 a.m. EDT.