Why Treasury Yields Are Rising Despite Rate-Cut Expectations

livemint.com:

The Federal Reserve keeps promising interest-rate cuts. Treasury yields, a key driver of mortgage rates and other borrowing costs, keep rising anyway. As of Monday, the yield on the benchmark 10-year U.S.

Treasury note was 4.252%, according to Tradeweb, up from 3.860% at the end of last year. As a result, the average rate on a 30-year fixed mortgage has also ticked higher, as has the cost of borrowing in the corporate-bond market. The climb has surprised many on Wall Street, who had expected yields to fall, and frustrated Americans who have been waiting for mortgage rates to ease from two-decade highs.

But it illustrates the nuances of how borrowing costs are determined in the U.S., and the continuing uncertainty over the path they might take. Here’s what is moving Treasury yields, and why they might go up or down in the near future. Behind the 10-year yield’s recent rise Yields on Treasurys, which rise when bond prices fall, largely reflect what investors think the Fed’s benchmark short-term rate will average over the life of a bond.

They in turn set a floor on mortgage rates and other types of fixed-rate debt. Right now, the Fed’s short-term rate sits in a range between 5.25% and 5.5%, a 23-year high. Coming into 2024, investors expected the Fed to cut that rate six times this year, bringing it down to 3.75%—4%.

Then came a reality check. Inflation readings for January and February came in firmer than expected, and economic growth has proved resilient, forcing investors to dial back their rate-cut bets. Now, traders expect rates to end the year between 4.25% and 4.5%.