U.S. 10-Year Treasury Yields Hit 5% for the First Time since 2007

Relentless Push Higher for Government Borrowing Costs

The U.S. 10-year Treasury yields have reached a significant milestone, hitting 5% for the first time since 2007. This surge marks a relentless push higher for government borrowing costs. The rise in yields can be attributed to further signs of resilience in the U.S. economy, which have led traders to unwind bets on the U.S. Federal Reserve lowering interest rates.

Resilient U.S. Economy and Tight Labor Markets

Fed Chair Jerome Powell recently highlighted the strength of the U.S. economy and the continued tight labor markets. These factors could potentially require tougher borrowing conditions in order to control inflation. Powell also acknowledged that rising market interest rates could make action by the central bank less necessary.

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Expectations for Higher Government Debt Levels

Treasuries have also been impacted by expectations for higher government debt levels and increased bond sales. The combination of these factors has contributed to the upward pressure on yields.

Expert Opinions

• Michael Schulman, Partner & CIO, Running Point Capital Advisors, El Segundo, California: “I see the 5% as a psychological threshold, but I’ve been telling my clients for over a year that we are in a higher for longer environment. Inflation is going to stay around, higher than it has in the past, and with it interest rates also.”
• Noah Wise, Portfolio Manager, Allspring Global Investments, Charlotte, NC: “I do think that (Powell’s) comments today are definitely a big factor behind the move to 5%. He highlighted what everyone has seen with the strong economic growth data and the retail sales figure that came out. He also signaled that he is fine with tightening coming as a result of longer end rates going higher, even if it means that the shorter end rates don’t need to go as high.”
• Brian Jacobsen, Chief Economist, Annex Wealth Management, Menomonee Falls, Wisconsin: “The move up has been driven by the Fed leaving the market as a price-insensitive buyer. Foreign demand has also waned. Combined with surprisingly large issuance from the deficit, it’s a classic supply and demand effect.”
• Quincy Crosby, Chief Global Strategist, LPL Financial, Charlotte, North Carolina: “When we move to a new level, it’s always an adjustment psychologically. Powell made it clear that another rate hike is on the table, but he did not telegraph that it would be for November. There is also concern over the deficit, which is now poised to climb higher with the larger defense needs for the administration. The U.S. itself needs to have a larger budget to replenish the military stockpile.”

In conclusion, the U.S. 10-year Treasury yields reaching 5% for the first time since 2007 signifies a significant development in the government borrowing landscape. The resilience of the U.S. economy, along with expectations for higher government debt levels, has contributed to this surge. Expert opinions highlight the psychological impact of this milestone and the factors driving the increase in yields. As the market continues to navigate these changes, it is important to closely monitor the implications for various sectors and investment strategies.