{"id":75968,"date":"2023-10-23T18:35:44","date_gmt":"2023-10-23T22:35:44","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-10-year-treasury-yield-briefly-pierced-5-heres-what-could-drive-it-higher\/"},"modified":"2023-10-23T18:35:47","modified_gmt":"2023-10-23T22:35:47","slug":"the-10-year-treasury-yield-briefly-pierced-5-heres-what-could-drive-it-higher","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=75968","title":{"rendered":"The 10-year Treasury yield briefly pierced 5%. Here\u2019s what could drive it higher."},"content":{"rendered":"
\n

Now that the 10-year Treasury yield has briefly burst through 5% for the first time in 16 years on Monday, there may be more reasons to think that it could go even higher.<\/p>\n

In a note, Lisa Shalett, chief investment officer and head of the global investment office for Morgan Stanley Wealth Management in New York, points to the possible need for investors to include the outbreak of global conflicts and the questionable sustainability of the U.S. debt into the premium that encapsulates all of the risks of holding long-term government debt to maturity.<\/p>\n

\n

Term premium is the theoretical and unquantifiable number which Wall Street has been obsessed with because it seems to be driving much of the recent surge in long-term Treasury yields. It refers to all the risks which investors want to be compensated for to buy and hold government debt \u2014 including stronger long-term economic growth, higher-for-longer increased rates, inflation uncertainty, and an increased supply from Treasury. <\/p>\n

Expectations for future U.S. price gains have jumped sharply since the Israel-Hamas conflict erupted about two weeks ago, while the growing federal-government debt and costs to service it may \u201cultimately squash growth or unleash higher inflation, depending on the Fed\u2019s ability and desire to monetize it,\u201d according to Shalett.<\/p>\n

\u201cAlthough many factors are contributing to higher rates, such as stronger-than-expected growth and the Fed\u2019s inflation focus, it may be time to contemplate whether global wars and questions about U.S. debt sustainability also merit a higher risk premium,\u201d she wrote on Monday. \u201cThe federal debt already exceeds $33 trillion, and servicing costs, now close to $600 billion, are poised to surpass total defense spending by 2033.\u201d<\/p>\n

Moves in the 10-year yield
\n BX:TMUBMUSD10Y
\n tend to reflect investors\u2019 assessments of the U.S. economy, policy volatility and long-run capital returns. By contrast, shorter-term rates on everything from the one-month Treasury bill
\n BX:TMUBMUSD01M
\n to the 2-year note
\n BX:TMUBMUSD02Y
\n are usually a reflection of hawkish Federal Reserve speak and the probability of rate hikes.<\/p>\n

A number of factors are at play right now when it comes to the benchmark 10-year yield, used\u00a0to price\u00a0everything from mortgages to student and auto loans. One of them is a surge in Treasury issuance and \u201cdearth of buyers (no Federal Reserve, no regional banks, fewer foreigners), raising legitimate questions about U.S. debt sustainability,\u201d according to Shalett. Another is the market\u2019s view of the real neutral rate \u2014 or level of short-term interest rates that\u2019s expected to prevail when the economy is at full strength and inflation is stable \u2014 \u201cwhich may be higher than previously assumed.\u201d <\/p>\n

Since Oct. 7, when the militant group Hamas launched a surprise attack on Israel, Treasurys \u201chave barely experienced a flight-to-safety trade,\u201d she said. Instead, the 10-year yield has recently been jumping as the result of aggressive selloffs after having already soared almost a full percentage point from mid-July to Oct. 2.<\/p>\n

On Monday, the 10-year Treasury touched an intraday high of 5.022% before pulling back and finishing the New York session at a one-week low of 4.836%. Rates on 2-year notes through 30-year bonds also ended lower, reversing direction from earlier in the day when traders and investors were more focused on the likelihood of no U.S. recession. U.S. stocks
\n DJIA<\/p>\n

SPX<\/p>\n

COMP
\n finished mostly lower. <\/p>\n

Morgan Stanley Wealth Management, a division of New York-based Morgan Stanley MS, had almost $4.8 trillion in client assets as of Sept. 30. Shalett recommended that investors consider moderating any \u201clarge equity overweights to account for the risks of a structurally higher U.S. cost of capital, while adding to real assets\u2014including gold, commodities, infrastructure, energy transport and noncommercial real estate\u2014as a portfolio hedge given non-zero odds of stagflation.\u201d<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Now that the 10-year Treasury yield has briefly burst through 5% for the first time in 16 years on Monday, there may be more reasons to think that it could go even higher. In a note, Lisa Shalett, chief investment officer and head of the global investment office for Morgan Stanley Wealth Management in New […]<\/p>\n","protected":false},"author":1,"featured_media":75969,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-75968","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe 10-year Treasury yield briefly pierced 5%. 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