The 10-Year Treasury Yield Is at a One Year High
The 10-year yield is considered a benchmark for other financial instruments such as mortgage rates. This is its highest level since Feb 21, 2020. Yields move inversely to prices which means investors are selling off bonds.
Investors are concerned that rates are rising due to inflation fears rather than an economic recovery. The 10-year yield has moved around 50 basis points in the last two months surprising investors. “To be sure, if bond yields continue to rise and there is a smooth rotation out of growth and defensive stocks into value and cyclical stocks, the Fed will remain sanguine,” strategist Albert Edwards of Societe Generale said. “But the risk is growing that with so many bubbles blown by the Fed something will burst soon.”
There is valid concern surrounding inflation. Despite consumer prices only being up 1.4 percent year-over-year in January, indicators of retail sales, durable goods purchases, and service sector prices show inflation on the horizon. Policy makers have brushed off the concept of inflation as they focus on the US recovering from the COVID-19 pandemic as soon as possible.
Another common indicator of inflation is the 5-year breakeven rate. The metric rose to 2.38 percent on Wednesday, reaching its highest level since before the Great Recession.
“We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect,” Federal Reserve Chairman Jerome Powell said on Wednesday.