The key 10-year Treasury yield finally broke through the 5% mark for the first time in 16 years early Monday as traders focused on U.S. economic strength over geopolitics.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was 5.089%, up less than 1 basis point from 5.082% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
was 4.965%, up 4.1 basis points from 4.924% on Friday, after touching an intraday high of 5.02%. The 10-year yield hasn’t ended the New York session above 5% since July 19, 2007. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was 5.117%, up 3 basis points from 5.087% on Friday.
What’s driving markets
Yields have climbed in recent weeks as the result of what Fed officials including Chairman Jerome Powell and some investors see as rising term premiums — the unobservable compensation that investors require for bearing the risk that rates may change.
Analysts also said the Fed’s hawkish stance and U.S. economic strength are more reasons why yields have climbed. A recession is no longer the consensus view among economists, according to a Wall Street Journal quarterly survey.
The next Fed decision comes on Nov. 1, with expectations the central bank will pause and wait for more data before the December meeting.
Geopolitics appeared to be playing less of a role in Monday’s rise in yields as traders monitored diplomatic efforts in the Middle East. Meanwhile, the Bank of Israel opted to hold interest rates at 4.75%, two weeks after the surprise attack by Hamas.
What strategists are saying
Treasurys “sold off during the overnight session as 10-year yields traded with a 5-handle for the first time since 2007. There was no new fundamental trigger, perhaps simply the passing of the weekend and embedded geopolitical risk was enough to achieve the milestone,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“While war in the Middle East remains top of mind for many investors, the impact on global financial markets has remained limited, all things considered,” they wrote in a note. Flight-to-quality flows in U.S. Treasurys “have been overshadowed by the no-landing narrative and as such, investors are unwilling to use the logic of safe haven potential to step in front of the bearish repricing that’s currently underway.”
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