The 10-year Treasury yield closed Wednesday at 5.29%, up about 3 basis points. That clears the June 12, 2007 close of 5.26% and marks the highest level since April 2002.
It got there on a day when inflation came in cooler than expected.
Good inflation news didn't help bonds
Core PCE rose 3.0% from a year earlier against a 3.3% forecast. Yields dipped toward 5.22% on the release, then climbed to a session high near 5.30% by early afternoon.
The leading explanation is growth. Final Q2 GDP came in at 2.2% against a 1.5% forecast, and ADP reported about 90,000 private jobs added.
That makes this morning's labor and factory data the next test of the strong-economy read.
The long end moved, not the front
The 30-year closed at 5.63%, up nearly 4 basis points and its highest since June 2002. The 2-year pulled back as odds of an October hike faded after NY Fed President John Williams said there was "no need for urgency,".
So the Fed worried markets less, but long-term borrowing still got more expensive. Williams speaks again today, and any change in his tone would hit the 2-year first.
Stocks split along rate sensitivity
The Dow fell 0.9% to 50,906.05 and finished September down 4.3%. The Nasdaq rose 0.2% to 26,861.06, up 1.9% for the month.
That 6.2-point monthly gap is the bond selloff showing up in stocks. The S&P 500 slipped 0.3% to 7,651.54, its 0.4% September loss leaving it less than 2% from its record.
That cushion is now being measured against a 10-year near 5.30%.
Oil keeps the inflation question open
WTI settled at $90.17, up 0.9%, and Brent at $103.30. Brent gained about 11% in September.
Crude rose on comments about Iran sanctions, then faded from a $94.60 high on plans to release oil from the Strategic Petroleum Reserve. That price pressure feeds directly into today's ISM prices gauge.
The dollar and gold reversed
The dollar index hit 101.06 at 8:30 a.m. after PCE, then rose about 0.45% from that low to finish near 101.5. Gold moved the opposite way, spiking near $4,215 before rising yields pulled it back.
Both reversals tracked the 10-year tick for tick. Today's yield reaction to the data will likely move them in the same direction.
The day ahead
Initial jobless claims come out at 8:30 a.m. ET, with a forecast of 201,000 against 197,000 prior. Another low number would extend the strong-growth read that lifted yields Wednesday.
The ISM manufacturing index comes out at 10:00 a.m. ET, forecast at 54.8 from 54.6. Its prices component is expected at 72.9, up from 71.1.
A hotter prices reading would add to the pressure from $90 oil and a 10-year already above its 2007 peak. Fed Governors Christopher Waller and Lisa Cook and NY Fed President John Williams all speak later in the day.
