Falling stocks, climbing mortgage rates: how 5% Treasury yields could roil markets
By Saqib Iqbal Ahmed
NEW YORK (Reuters) -Relentless selling of U.S. government bonds has brought Treasury yields to their highest level in more than a decade and a half, roiling everything from stocks to the real estate market.
The yield on the benchmark 10 year Treasury — which moves inversely to prices — briefly hit 5% late Thursday, a level last seen in 2007. Expectations that the Federal Reserve will keep interest rates elevated and mounting U.S. fiscal concerns are among the factors driving the move.
Because the $25-trillion Treasury market is considered the bedrock of the global financial system, soaring yields on U.S. government bonds have had wide-ranging effects. The S&P 500 is down about 7% from its highs of the year, as the promise of guaranteed yields on U.S. government debt draws investors away from equities. Mortgage rates, meanwhile, stand at more than 20-year highs, weighing on real estate prices.
«Investors have to take a very hard look at risky assets,» said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York. «The longer we remain at higher interest rates, the more likely something is to break.»
Fed Chairman Jerome Powell on Thursday said monetary policy does not feel «too tight,» bolstering the case for those who believe interest rates are likely to stay elevated.
Powell also nodded to the «term premium» as a driver for yields. The term premium is the added compensation investors expect for owning longer-term debt and is measured using financial models. Its rise was recently cited by one Fed president as a reason why the Fed may have less need to raise rates.
Here is a look at some of the ways rising yields have reverberated throughout markets.
Higher Treasury yields can
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