The 10-year Treasury yield rose on Wednesday as investors considered the outlook for the economy after Fitch Ratings downgraded the long-term foreign currency issuer default rating for the U.S.
The yield on the 10-year Treasury last traded about 3 basis points higher at 4.073%. Earlier in the session it hit its highest level since November. The 2-year Treasury yield was about 3 basis points lower at 4.881%.
Yields and prices have an inverted relationship and one basis point equals 0.01%.
Treasurys
Investors assessed the state of the U.S. economy after Fitch Ratings cut the U.S.' long-term foreign currency issuer default rating from AAA to AA+ on Tuesday.
The agency referenced "fiscal deterioration over the next three years" as well as issues with governance standards and pressures related to growing general debt. Fitch had first placed the U.S. on negative watch during the debt ceiling crisis earlier this year and referred to the tensions on Tuesday.
"The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management," it said.
Adding pressure to yields was news that the Treasury Department will sell $103 billion of securities next week. The sale will come in the form of 3-year, 10-year and 30-year debt.
"Although issuance has likely influenced UST yields short term, the more impactful – and more enduring – factor are higher odds of a soft landing," wrote Dennis DeBusschere of 22V Research in a note discussing the move higher in longer-term yields.
"Put differently, if the next economic cycle sees inflation stay at levels well above the post-GFC period (when inflation was consistently below target), 10-year yields are biased higher and yield curves steeper, WELL BEYOND near term issuance related influences," he added,
Investors also looked ahead to key economic data and labor market reports that could provide clues about what is ahead for the U.S. economy and monetary policy.
The central bank has been hiking interest rates since early 2022 in an effort to ease inflation and cool the economy, including the labor market. In recent months, Fed officials have repeatedly indicated that policy shifts ahead will depend on economic data.