Fed rate hike could lift 10-year Treasury yields past 6% level

The Federal Reserve raised its policy rate for the first time since July 2023, citing persistent inflation and higher energy costs. Historical data compiled by strategists at The Kobeissi Letter show that, on average, the 10-year Treasury yield rises about 50 basis points in the six months following a Fed hike and roughly 110 basis points over the subsequent year. If the pattern repeats, the yield could exceed 6% by next year, a threshold last reached in August 2000.

In some past cycles, the 10-year yield climbed as much as 400 basis points within a year after an initial rate increase, while other periods saw declines of up to 70 basis points.

"More US Treasury intervention is likely coming," the strategists said, referring to recent Treasury purchases aimed at tempering yield growth, which have so far failed to halt the rise above the 5% mark.

Investors are also watching the Fed’s updated economic projections and the “dot plot,” which did not eliminate the possibility of an additional hike later this year. Goldman Sachs economist David Mericle described the move as indicating "the likely start of a moderate tightening cycle rather than delivering a one-off hike."

Higher Treasury yields are prompting a shift in equity market sentiment. A Bank of America survey showed the share of fund managers overweighting stocks fell to 49% from 56% a month earlier, while cash holdings rose to 3.9%, the largest monthly increase since March.