US 10-year Treasury yield hits 5% for first time since 2007

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The 10-year Treasury yield rose above 5 per cent on Monday for the first time in 16 years, extending a multi-week rout in bonds as investors bet that the US Federal Reserve would keep interest rates at their current high levels for longer.

The 10-year yield, which is the benchmark for asset prices across the globe, rose 0.078 percentage points to 5 per cent, its highest level since July 2007, extending a steady repricing of government debt that has been fuelled by better than expected economic data and an increase in government bond supply.

Yields on longer-dated Treasury bonds have moved higher since the Fed indicated in the so-called dot plot from its September meeting that officials were expecting a slower path towards interest rate cuts in 2024 and 2025. Strong US economic data since then has only hardened investor expectations that the Fed is likely to keep rates higher for longer.

A spate of data in recent weeks has suggested that the US economy is in good health, despite the historic rise in interest rates delivered by the Fed over the past 18 months. Last week, the commerce department reported that US retail sales rose by more than expected in September. That data came on the heels of labour department data from the beginning of the month that showed a dramatic increase in hiring in September.

In the futures market, traders were betting that interest rates would be at 4.7 per cent by the end of 2024, compared with expectations of a level of 4.2 per cent at the start of September.

The latest move in Treasury yields came after Fed chair Jay Powell on Thursday signalled that the US central bank was prepared to forgo raising interest rates when they next meet in November.

Powell said the bank would proceed “carefully” with interest rate decisions, striking a cautious note ahead of the central bank’s scheduled “blackout” period ahead of bank’s two-day meeting starting on October 31.

Analysts said Fed caution about raising rates while growth was still strong helped push yields higher for longer-dated bonds as investors bet rates would have to stay at high levels for a longer period to bring down inflation.