The 10-year U.S. Treasury note yield rose to a multiyear high on Monday ahead of this week's Federal Reserve interest rate decision, touching 5% for the first time since October 2023.
The benchmark rate, which influences mortgages, auto loans and credit card debt, was up more than 2 basis points at 5%. The 2-year Treasury note yield, most sensitive to short-term Fed policy, advanced more than 2 basis points to 4.666% after touching its highest level since July 2024 last week. Yields on longer-dated 30-year Treasury bonds, more sensitive to geopolitical risks, were also up 2 basis points at 5.374%. One basis point equals 0.01%, and yields and prices move in opposite directions.
The moves follow August consumer price index data reported Friday that matched expectations while remaining far above the Fed's 2% inflation goal, as it has for the past five years. That report was the final inflation indicator the Fed will see before its policy meeting on Tuesday and Wednesday. Odds that the Fed will raise interest rates by a quarter percentage point now stand at 90%, according to the CME Group FedWatch tool.
"Hiking would be the cleaner decision based on the data and current market expectations," said Jay Woods, chief market strategist at Freedom Capital Markets. "I believe the market has priced that in and may rally with a hike. No change may cause a negative market reaction as it screams once again the Fed is behind the curve."
If the 10-year yield moves beyond 5.02%, it would reach its highest level since July 2007, before the Global Financial Crisis of 2008-2009. Jason Ware, chief investment officer at Albion Financial Group, said the latest rise stems partly from a supply-demand imbalance as heavy debt issuance by the Treasury and corporations competes for investor capital, adding he doesn't expect markets to break simply because the 10-year crosses 5%. He pointed to a resilient economy and steady core inflation, arguing stocks would be more vulnerable to a slowdown in consumer spending or AI investment than to the yield crossing that threshold.
Large federal deficits, heavy debt issuance and sticky inflation have contributed to a rising term premium, the extra compensation investors demand for holding long-term bonds instead of rolling over short-term Treasury bills. Surging crude oil prices have added another potential source of price pressure.
Treasury Secretary Scott Bessent has sought to contain pressure at the long end of the yield curve using an expanded bond buyback program, though such measures have limited ability to constrain yields against the $1.2 trillion a day that changes hands in the Treasury market. BMO Capital Markets strategists said a more active buyback program could help limit selling pressure but "fails to address the prevailing fundamental drivers of the upward pressure on 10- and 30-year yields." George Awad, principal at Gibraltar Capital, has highlighted leveraged hedge-fund exposure underpinning the Treasury market, including trading based on spreads between cash and futures.
Read more at CNBC
