10-year Treasury yield hits 2007 high as markets anticipate Fed rate hike
The benchmark 10-year Treasury yield rose to 5.025%, its highest level since 2007, as investors priced in a strong likelihood of a 25-basis-point Fed rate increase.
The yield on the benchmark 10-year U.S. Treasury note climbed to 5.025% on Tuesday, the highest level recorded since 2007, as a broad sell-off in government debt intensified ahead of the Federal Reserve’s policy meeting. The increase of more than six basis points followed a brief breach of the 5% mark on Monday.
Longer-dated securities also rose, with the 30-year Treasury yield up over five basis points to 5.384% and the two-year note gaining about four basis points to 4.68%.
Traders using the CME FedWatch tool now assign a more than 92% probability that the Fed will raise its target rate by a quarter point at the start of its two-day meeting, reflecting persistent inflation pressures that remain above the central bank’s 2% goal.
"U.S. 10-year treasuries are highly sensitive to inflation expectations, and with inflation gauges still above the Fed's target of 2%, we believe this tight correlation will likely persist for a while," said Jonathan Liang, chief investment officer for fixed income and FX at Standard Chartered.
Analysts also highlighted the growing link between oil prices and Treasury yields. The one-month rolling correlation between front-month West Texas Intermediate crude and the 10-year yield has risen to 0.96, according to BMO Capital Markets.
"Speaking simplistically, higher oil prices lead to higher inflation expectations and vice versa," said Steve Sosnick, chief strategist at Interactive Brokers. "As long as oil prices remain firm and continue to drift higher, this will add pressure to interest rates."