Treasury yields haven’t been this high in years — and the fiscal math gets uglier the longer they stay there The Federal Reserve looks all but certain to hike interest rates on Wednesday, even though it would risk making the large U.S. debt burden more precarious to manage. Fed Chairman Kevin Warsh could improve his inflation-fighting bona fides by raising short-term rates by 25 basis points. Doing so may staunch the sharp selloff in the $31.5 trillion Treasury market that has pushed long-end yields to their highest levels in decades. **See:**Why a Federal Reserve rate hike could be a ‘rare win’ for your retirement money Infrastructure investing: A hedge against inflation and geopolitics?Play video: Infrastructure investing: A hedge against inflation and geopolitics?
Bond buyers were starting to return after the benchmark 10-year Treasury yield hit 5% on Monday, said John Velis, BNY’s Americas macro strategist. That’s a switch from when yields were below that threshold, he noted. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. Yet a rate hike — or a few— wouldn’t end the Iran war, nor erase the costs associated with the roughly 80% spike in U.S. and global crude-oil prices this year.
Those factors could make bonds less valuable, because inflation erodes what a fixed income can buy. Traders had the odds above 90% for an interest-rate hike on Wednesday, according to the CME FedWatch Tool. That might be a deciding factor for some on the Fed’s rate-setting committee.
Yet a series of hikes could hurt the bull market in stocks or endanger the U.S. economy. They also risk increasing borrowing costs at a crucial moment for the federal government’s fiscal picture. With the U.S. national debt now topping $40 trillion, the interest expense alone now eats up almost 20 cents of every dollar of revenue earned by the government, according to the Committee for a Responsible Federal Budget, a fiscal-policy think tank.
That’s up from less than 10 cents on the dollar in 2007, as the below chart shows. Yields of 5% may be taken in stride, but hitting 5.5% or 6% on the 10-year note would be more concerning, Sockin said. The bond-market selloff already prompted Treasury Secretary Scott Bessent to increase buybacks of long-dated U.S.
Extract — continue reading at the source.
