On the 21st (local time), the 10-year U.S. Treasury yield surged to its highest level in about 16 years in the U.S. bond market. This was a result of growing concerns that interest rates could remain higher than expected even after the Federal Reserve's tightening cycle concludes, ahead of this week's 'Jackson Hole Meeting.'
According to Bloomberg News, the 10-year Treasury yield in the New York bond market touched 4.35% intraday on Monday, marking the highest level since 2007. This is more than 1.4 percentage points above the 20-year average 10-year yield of 2.9%, as compiled by Bloomberg. The 30-year yield also reached 4.45% in afternoon trading, hitting its highest level since 2011. The Wall Street Journal (WSJ) reported, "The upward trend in long-term yields does not appear to be ending," adding, "The bond sell-off (rising yields) was once again led by long-term bonds." The 2-year yield, which is sensitive to monetary policy, also rose to 4.99%. Bond prices and yields move inversely.
This rise in Treasury yields is analyzed as a consequence of stronger-than-expected recent economic data boosting hopes for a soft landing of the economy, along with heightened caution around Fed tightening. Expectations that the Fed would cut rates soon have diminished, leading to more investors betting on high interest rates. The U.S. Treasury's increase in bond issuance is also exerting upward pressure on long-term yields. On the other hand, demand for Treasuries is declining. Amid the Fed's ongoing balance sheet reduction, major holders such as Japan and China are also selling U.S. Treasuries.
Especially ahead of Fed Chair Powell's speech at this week's Jackson Hole meeting, the bond market is showing even stronger caution regarding tightening. Investment magazine Barron's noted, "Investors are focusing on this week's Jackson Hole Meeting, and Treasury yields are rising today." Chair Powell is scheduled to deliver an economic outlook speech on the second day of the Jackson Hole Meeting, the 25th. It is expected that he will reaffirm a data-dependent stance and leave open the possibility of further rate hikes if necessary. Bank of America (BoA) analysts stated in an investor memo, "Chair Powell is likely to emphasize that every (FOMC) meeting is live and data-dependent."
As the benchmark 10-year yield continues its upward trend, U.S. mortgage rates have also jumped to their highest level since November 2000. The average 30-year fixed mortgage rate reached 7.48% on the day, rising 0.29 percentage points in just one week. Matthew Graham, Chief Operating Officer of MND, predicted that mortgage rates will only decline once economic indicators slow down and the Fed begins to face pressure to cut rates.
Meanwhile, the New York stock market closed mixed ahead of major events this week, including Nvidia's earnings announcement and the Jackson Hole Meeting. Despite the rise in Treasury yields, the tech-heavy Nasdaq index rose 1.56% compared to the previous session.
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