Bond Yields Are Still Rising While The Inflation Rate Falls And End Hikes In Sight – How?
- The top 10-year Treasury yield was soundly above 4% in August, assisting installing the 2023 rally of the stock market.
- But the yields should be doing the opposite theoretically with the end of rate hikes in sight while inflation is falling.
- Here are the reasons why treasury yields are moving up steadily this month.
Since 2008, the ten year treasury yield reached the highest level on Thursday, and it touched 4.30%, which is a huge jump. This is a huge shift from the current year’s narrow rate of 3.68%, notched in April.
The rising yields have put a dent in the stock market’s outstanding 2023 rally. It confounded and frustrated the markets, which are seeing an end in sight to the rate-hiking campaign in the middle of dwindling inflation.
So, since the prices are cooling down and the Fed possibly stops raising rates the current year, why are yields ever higher?
The first reason is the economy’s strength, which is strong enough not to support the near-term recession narrative. Amid stress, the investors will flock to their safe havens such as the driving yields lower and US Treasury bonds.
Now, the markets are pushing out their expectations for downtown to next year’s first quarter at the earliest.
The second reason for high yields is a massive amount of Treasury supply hitting the market. It needs to be taken into account that bond yields rise when the prices fall down. When supply increases, the price is weighed down.
Actions that the foreign central banks take can potentially weigh on the price of bonds which makes them more attractive to domestic investors.
According to the experts, the yields will keep trending a little high for this year; and according to some, the ten year treasury yield at the rate of 4.5% next quarter is not completely out of the question.
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