Yield on 10-year US bonds nears 5%
In the United States, the yield on 10-year government bonds approached the psychological 5% mark ahead of the Federal Reserve’s decision on its key interest rate. On Monday, it fell by one basis point to 4.968%, after reaching 4.992% on Friday, its highest level since October 2023, CNBC Top News reports.
The market awaits the Fed’s decision
The yield on two-year Treasury bonds, which is most sensitive to the Fed’s short-term policy, declined by three basis points to 4.611%. Last week, it reached its highest level since July 2024. The yield on 30-year bonds was nearly unchanged at 5.359%.
One basis point equals 0.01 percentage point, and bond prices move in the opposite direction to their yields.
Markets were assessing August inflation data ahead of the Fed meeting this week. The US consumer price index rose 0.4% month-on-month on a seasonally adjusted basis, while the annual figure was 3.4%. Both readings matched the Dow Jones consensus forecast, but remained significantly above the Fed’s 2% target.
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According to trading in federal funds rate futures on the Chicago Mercantile Exchange, the probability of a 0.25-percentage-point rate hike was estimated at 86.7%. The Fed’s current target range for its key rate is 3.50–3.75%.
Factors behind rising yields
As Jason Wea, chief investment officer at Albion Financial Group, noted, higher yields are partly linked to an imbalance between supply and demand: substantial volumes of government and corporate debt issuance are competing for investors’ funds. In his view, crossing the 5% level itself would not necessarily cause market disruptions if rising yields are accompanied by steady economic growth.
Niall O’Sullivan, chief investment officer at Marsh Investments, noted that the 10-year yield is a benchmark for borrowing costs in the United States, including mortgage and corporate loans, as well as for the valuation of stocks and other assets. At the same time, he said that the 5% level could create problems if investors demand higher compensation for inflation and fiscal risks.
Strategists at BMO Capital Markets believe that a more active bond buyback program, which the US Treasury uses to curb pressure on long-term securities, could limit selling pressure but does not eliminate the fundamental factors driving up yields on 10- and 30-year bonds.
