
The almighty 10-year U.S. Treasury note yield just flirted with a staggering 5% – a move unseen for 16 years.
Investors worldwide are in a dizzying frenzy, questioning: Is this the climax or just the tip of the iceberg in this mind-boggling financial saga?
It’s not just about numbers – the fate of the entire economy hangs in the balance.
With this Treasury yield rollercoaster, we’re now seeing 30-year mortgage rates inch terrifyingly close to 8%.
Your stocks?
They’re feeling the tremors too.
And if you’re hoping for a plot twist, whispers of an impending recession are already making rounds.
So, what’s steering this wild ride?
Enter: The Federal Reserve.
Those Treasury yields?
They’re a crystal ball into what investors think the Fed’s interest rates will look like over a bond’s lifetime.
But, hold on.
Plot twist: these yields started their upward journey in 2022, even before the Fed hiked up the rates.
2012-2013 threw another curveball with the notorious ‘inverted yield curve’.
This means the long-term Treasury yields plunged below their short-term counterparts.
Why’s this so infamous?
For this to happen, investors MUST believe that the economy’s future isn’t all rainbows and sunshine.
They’re betting on rate cuts, most likely due to a recession.
With an inverted curve, just by the clock ticking, investors can bleed money.
It’s a high-stakes game where time is literally money.
But Wall Street loves its gambles, and earlier this year, betting on an even deeper inversion was the talk of the town.
Some didn’t exactly know what to do with bond yields, but they felt safe wagering on their future ratios.
After all, with the Fed pulling out all stops against inflation, surely short-term rates would skyrocket beyond long-term ones, right?
WRONG.
Summer brought with it surprising news: the economy, contrary to expectations, showed signs of strength and inflation began to chill out.
The result?
A massive market U-turn.
Those who didn’t switch lanes in time felt the burn.
We saw an unprecedented race with long-term yields skyrocketing, breaking norms.
But the real plot thickens: Instead of the usual Fed-induced rate cuts to heal a wounded economy, this rise in longer-term yields is fueled by economic STRENGTH.
And as if the drama wasn’t enough, in a whirlwind three-day trading session at the end of July, Japan’s Bank jacked up its bond cap, the U.S. Treasury forecasted a borrowing boom, and Fitch Ratings gave the U.S. a downgrade.
These events sent shockwaves, signaling that the supply of Treasurys might outpace demand.
Now, all eyes are on the tantalizing 5% ceiling.
While some investors are praying for a halt, considering the global threats and skyrocketing borrowing costs, others believe we might soar even higher.
The future?
Uncertain.
But this thrilling saga of the 10-year Treasury Yield continues, leaving investors on the edge of their seats, wallets in hand.