The 10-year Treasury Yield Rises as Investors Digest the Downgrade of the U.S Rating

On Thursday, Treasury yields experienced an increase as investors analyzed the implications of Fitch Ratings' decision to lower the U.S.' long-term foreign currency issuer default rating and evaluated recently released economic data.

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The 10-year Treasury yield rose approximately 10 basis points to 4.175%, reaching levels last observed in November 2022. Simultaneously, the yield on the 2-year Treasury increased by 2 basis points to 4.91%.

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Investors carefully considered the potential outlook for the U.S. economy, taking into account recent developments and crucial economic data. According to Adam Crisafulli from Vital Knowledge, the steepening yield curve can be attributed to favorable macroeconomic conditions. Although higher 10-year yields could affect stock valuations, the move in Treasury yields is being driven by what he calls "good" reasons.

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Earlier this week, Fitch Ratings downgraded the U.S.' long-term foreign currency issuer default rating from AAA to AA+, citing concerns about "fiscal deterioration," governance standards, and growing general debt.

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Additionally, investors analyzed a series of economic data releases that provided insights into the state of the labor market and could potentially influence the Federal Reserve's upcoming interest rate decision. This data included jobless claims figures in line with expectations and stronger-than-anticipated productivity data for the second quarter. These assessments followed Wednesday's better-than-expected ADP employment report and preceded Friday's release of July jobs data.

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Furthermore, on Thursday, the Bank of England announced a 25 basis point interest rate hike as part of its efforts to combat persistently high inflation.

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