Treasury yields pushed to their highest levels of the month on Monday even as traders trimmed the odds of a Federal Reserve rate hike next month — a combination that says less about the Fed's next meeting than about what investors think inflation will look like well beyond it.
The 10-year Treasury yield rose four basis points to 4.69%, its highest reading so far in August. The 2-year added four basis points to 4.24%, while the 30-year climbed three basis points to 5.24%. Equities barely moved: the S&P 500 edged up 0.1% to 7,766.
A Bond Market That Isn't Buying the Pause
The rise in yields is notable because it came after the Fed's path shifted in the opposite direction. Following Friday's July employment report — in which the U.S. economy shed 23,000 jobs against forecasts for an 83,000 gain — the probability of a 25-basis-point September hike on the CME FedWatch tool fell to 44.1% from 55% a day earlier. Odds of a hold at the current 3.50%–3.75% target range rose to 55.9%, up from 45%.
Ordinarily, a market that has just downgraded the chance of tighter policy would see yields fall. Instead the long end rose, with the 30-year now within a basis point of 5.25%. That pattern typically reflects investors demanding more compensation for inflation and issuance risk over time, rather than repricing the front end of the curve.
Metals Extend a Sharp Run
Precious metals told a similar story. Gold rose 0.81% to $4,378.76 per troy ounce, holding above $4,300 after surging more than 7% last week. The metal is up 9.42% over the past month and roughly 31% from a year ago.
Silver moved more forcefully still, climbing 3.30% to $65.64 an ounce, with spot quotes reaching $65.86 by mid-afternoon. Silver has gained 13.92% in a month and is up more than 74% year over year, one of the strongest twelve-month runs in the complex. A softer dollar and the pullback in near-term hike expectations have both helped, though the persistence of the move suggests something more durable than a single data point.
Wednesday Is the Real Test
The July Consumer Price Index arrives Wednesday, August 12, at 8:30 a.m. ET. Economists surveyed by Dow Jones expect headline CPI to rise 0.1% on the month and 3.4% from a year earlier. Core CPI is forecast at 0.32% month over month and 2.5% annually, which would mark a cooling from June's 2.6% reading.
Prediction markets are leaning cooler than the consensus. Kalshi traders put less than 55% odds on a headline reading above 3.3% year over year, and just 15% odds on a print above 3.4%.
The stakes are elevated because the Fed's July 29 decision to hold rates drew three dissents in favor of an increase, and Chair Kevin Warsh has signaled the committee is steering by incoming data rather than pre-committed guidance. A soft CPI would largely settle the September debate. A hot one would put a labor market that is already shedding jobs directly at odds with a central bank still worried about prices — and would likely leave the long end, and gold, doing the talking.
Sources: CNBC, Trading Economics, Yahoo Finance, Kiplinger, U.S. News & World Report, CME FedWatch, Bureau of Labor Statistics