Analysis-Relentless climb in Treasury yields may have further to run after surging to 5%
By David Randall and Davide Barbuscia
NEW YORK (Reuters) — Some investors believe a bond market selloff that has pushed the benchmark U.S. Treasury yield to 5% may have more room to run, as the Federal Reserve gives little indication of veering from its «higher for longer» mantra.
Fed Chair Jerome Powell walked a narrow line in his speech before the New York Economic Club on Thursday, saying the stronger-than-expected economy might warrant tighter financial conditions while also noting emerging risks and a need to move with care.
Still, some traders interpreted his comments as an endorsement of keeping rates around current levels through most of next year. Yields on the benchmark 10-year Treasury, which move inversely to bond prices, rose briefly to 5% late on Thursday, a closely watched level not seen since 2007. Stocks sold off on Thursday with the S&P down 0.85%.
“The underlying message is 'don’t be looking for a bailout from the Fed anytime soon,'” said Greg Whiteley, a portfolio manager at DoubleLine. «That gives people the go ahead to take rates above 5%.”
Whiteley said that he sees 10-year yields moving as high as 5.5% before peaking.
An extended climb in Treasury yields risks exacerbating the pressures that have dogged a broad array of assets in recent months. U.S. government bonds are on track for an unprecedented third straight year of losses, while the S&P 500 is off 7% from its July high as the promise of guaranteed yields on U.S. government debt draws investors away from equities. Credit spreads have widened in recent weeks, while mortgage rates have crept up to their highest since 2000.
»What really matters to the markets is how long we sustain 5% interest rates or higher and what sort of damage that does
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