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U.S. 10-Year Treasury Yield Hits 5% Milestone as Traders Unwind Rate Cut Bets

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US 10-Year Treasury Yield Hits 5% for the First Time since 2007

The US 10-year Treasury yield reached 5% for the first time since 2007, a significant milestone in the ongoing rise of government borrowing costs. This surge can be attributed to signs of resilience in the US economy, which have caused traders to rethink their bets on the US Federal Reserve lowering interest rates in the near future.

Federal Reserve Chair Jerome Powell’s comments on the strength of the economy and tight labor markets have also contributed to the sell-off in Treasuries. Powell acknowledged that tougher borrowing conditions may be necessary to control inflation, though rising market interest rates could reduce the need for action by the central bank.

Expectations for higher government debt levels and increased bond sales have further impacted Treasuries. The combination of the Fed’s reduced presence in the market as a price-insensitive buyer, decreased foreign demand, and larger issuances from the deficit has created a classic supply and demand effect.

The move to 5% has raised concerns among investors. Some are worried that this number could indicate further worsening of economic conditions, while others view it as an opportune time to invest. Michael Schulman, Partner, and CIO of Running Point Capital Advisors, believes that inflation will remain higher than in the past, leading to higher interest rates. Noah Wise, Portfolio Manager at Allspring Global Investments, agrees that Powell’s comments played a significant role in the rise, as he highlighted the strong economic growth data and retail sales figures.

Brian Jacobsen, Chief Economist at Annex Wealth Management, suggests that the rise in yields is due to the Fed’s exit from the market as a price-insensitive buyer and decreasing foreign demand, along with increased issuances from the deficit. He emphasizes that growth stories alone cannot explain the level of yields. Quincy Krosby, Chief Global Strategist at LPL Financial, adds that while Powell’s comments indicated the possibility of another rate hike, they did not provide a clear timeline. Krosby also highlights concerns over the mounting deficit, particularly due to increased defense needs and military stockpile replenishment.

Overall, the increase in the US 10-year Treasury yield to 5% reflects the current state of the economy and the expectations for future borrowing costs. While some view this as a worrying development, others see it as an opportunity for investment. The rising yields also raise concerns about the growing deficit and its impact on government finances.

It is worth noting that the Federal Reserve’s actions and market dynamics will continue to play a crucial role in determining the future direction of government borrowing costs. Investors will closely monitor economic data and policy announcements to gauge the potential impact on Treasury yields.

More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )

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