The yield on the benchmark 10-year U.S. Treasury note rose above 5.0% on Monday, hitting the July 2007 milestone that it briefly attempted to scale last week.
The run-up in yields on the 10-year Treasury bond, seen as a safe-haven in times of economic uncertainty and a benchmark for borrowing costs around the world, has been driven by investors pricing in stronger U.S. growth as well as fiscal slippage.
Yields at the long-end rose quickly after Federal Reserve Chair Jerome Powell said last week that the U.S. economy’s strength and hot labour market might warrant tighter financial conditions.
The 10-year yield touched 5.004% on Monday, up around 8 basis points (bps) on the day.
It was briefly bid at a 16-year high of 5.001% on Thursday. It has risen 160 basis points since mid-May.
Alongside the Fed’s hawkishness, worries over fiscal matters have caused term premiums on the curve to rise.
Treasury borrowing costs have climbed, and a divided Congress has bickered over next year’s spending bills while using stopgap measures to avert a shutdown of government operations.
In the background, the Fed is reducing its bond holdings.
In the year to September 2023, the U.S. government posted a $1.695 trillion budget deficit, a 23% jump from the prior year and the largest since a COVID-fueled $2.78 trillion gap in 2021.
The deficit comes as President Joe Biden is asking Congress for $100 billion in new foreign aid and security spending, including $60 billion for Ukraine and $14 billion for Israel, along with funding for U.S. border security and the Indo-Pacific region.
“It’s a major milestone, the fact the entire curve is at or above 5% is remarkable,” said Kyle Rodda, senior financial markets analyst at Capital.com.
“Debate rages about what this means and what’s driving the dynamic. Of course, it’s some combination of strong growth, high issuance, and quantitative tightening.”
The yield on the two-year U.S. Treasury was last up 4 bps at 5.125%.
The 30 year yield US30YT=RR was up 8bps at 5.164.
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