U.S. 10-year tops 5% for first time in 16 years

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The key 10-year Treasury yield finally broke through the 5% mark for the first time in 16 years on Monday.

What’s happening

  • The yield on the 2-year Treasury
    was 5.12%, up 1.3 basis points. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    was 5.01%, up 8.1 basis points.

  • The yield on the 30-year Treasury
    was 5.17%, up 8 basis points.

What’s driving markets

Yields have climbed in recent weeks in what Fed officials including Chair Jerome Powell and Vice Chair Philip Jefferson have largely blamed on rising term premiums — the unobservable compensation that investors require for bearing the risk that rates may change.

Analysts at Morgan Stanley say the Fed’s hawkish stance is another reason why yields have climbed.

“Two things stood out in the FOMC’s most recent dot-plot – another rate hike may be appropriate, and the higher policy rate would be in place for longer than previous dot-plots had suggested. In our view, the Treasury market has honed its reactions to incoming data on the hawkish reaction function that the FOMC communicated in its September meeting, subsequently reiterated by multiple Fed speakers,” they said.

The next Fed decision comes on Nov. 1, with expectations the central bank will pause and wait for more data before the December meeting.

The rise in yields on Monday, however, may reflect the small amount of progress in the Middle East, as Hamas released two hostages and Israel has continued to hold off on a ground invasion in Gaza.

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