The 10-year Treasury yield has surged to a 16-year high of 5%, marking the highest level since 2007, driven by expectations of sustained high-interest rates from the Federal Reserve and amplified government bond sales to offset burgeoning deficits. This follows Federal Reserve Chair Jerome Powell's indication of potential rate hikes due to inflation risks from a resilient economy.
Secretary Janet Yellen's department is preparing for its November refund amid concerns over the government's swelling budget deficits. This may necessitate an expanded supply of bills and bonds, following an increase in quarterly bond sales in August. These factors seem to outweigh any impact from the reignited Israel-Hamas conflict, undermining hopes for 2023 as the “year of the bond.”
Despite high rate volatility and technical weakness, a situation referred to as catching the falling knife, strategists at TD Securities recommend patience for catalysts. Meanwhile, Morgan Stanley (NYSE:MS) Investment Management views 10-year Treasuries above their fair value of 5% as a buy amidst haven flows into US debt.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.