Treasury sell-off continues after divided Fed holds interest rates steady

• The Fed's decision was split 9-3, with the committee citing 'solid' economic activity expansion despite elevated uncertainty from Middle East conflict
• Deutsche Bank economists expect 50 basis points in rate hikes this year (25 bps each in September and December), noting market reaction suggests doubts about imminent return to price stability
• Investors await weekly jobless claims and June PCE data, with headline inflation expected at 3.7% annually and core inflation at 3.3%

Treasury Sell-Off Continues Amid Fed Rate Decision

U.S. Treasury yields extended their upward trajectory Thursday following the Federal Reserve's decision to hold interest rates steady at 3.5%-3.75% in a divided 9-3 vote. The move marks the second FOMC meeting under Chairman Kevin Warsh's leadership.

Key Market Movements:

• 30-year Treasury yield climbed over 9 basis points to 5.236%, reaching its highest level since July 2007
• 10-year benchmark yield surged more than 8 basis points to 4.7%
• 2-year note yield increased 5 basis points to 4.289%

Fed Positioning:

The Federal Reserve acknowledged that "economic activity is expanding at a solid pace despite elevated uncertainty" related to Middle East conflict. The committee noted job gains have kept pace with workforce growth and unemployment remains stable.

Market Implications:

Deutsche Bank economists anticipate the Fed will implement 50 basis points in rate hikes throughout the year, with 25-basis-point increases expected in September and December. Analysts expressed concern that the market's reaction—rising long-end rates combined with declining forward real yields—suggests investor doubts about achieving near-term price stability.

The steeper yield curve could intensify pressure on the already-weakening housing market, though overall U.S. credit conditions remain supportive.

Upcoming Data:

Investors await Thursday's weekly jobless claims and June's personal consumption expenditures (PCE) price index. Dow Jones estimates project headline inflation at 3.7% annually and core inflation at 3.3%, excluding food and energy prices.

The persistent Treasury sell-off reflects market uncertainty about the Fed's inflation-fighting credibility and future monetary policy trajectory.