US 10-year Treasury yield climbs above 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 before falling back, as the recent volatility in global bond markets continued.

The 10-year yield, the benchmark for asset prices across the globe, rose early on Monday to a peak of 5.02 per cent, its highest level since July 2007, 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.

Yields later fell back to 4.90 per cent, extending their decline after billionaire investor Bill Ackman said he was ditching his bearish wager on long-term Treasuries.

“There is too much risk in the world to remain short bonds at current long-term rates,” Ackman posted on X, formerly Twitter, arguing that growth in the US was weaker than the mainstream data suggests.

Treasury bonds are a traditional haven for investors during moments of economic weakness or market volatility. Even so, they have not benefited much from the outbreak of the Israel-Hamas conflict, which briefly triggered a flight to Treasuries this month but was quickly shrugged off as investors focused on the domestic factors pushing yields higher.

Yields on longer-dated Treasury bonds have jumped 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. Robust US economic data since then has only hardened investor expectations that the central bank is likely to keep rates higher for longer.

Stronger than expected US retail sales, labour market and inflation data in recent weeks have helped push yields higher, despite the historic rise in interest rates delivered by the Fed over the past 18 months.

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 it next meets in November.

The Fed’s reluctance to raise borrowing costs further, despite a healthy economy, may force policymakers to hold them at a high level in order to bring inflation down, analysts said.

Growing concerns over the US government’s near $2tn annual budget deficit, exacerbated by Fitch Ratings’ decision in August to lower the US credit rating, have also added to upward pressure on yields.

Bond yields across Europe followed Treasuries. Ten-year German Bund yields, a benchmark for the eurozone, rose 0.08 percentage points before falling to trade flat on the day at 2.88 per cent. Yields on 10-year UK gilts rose by a similar amount and then fell to trade 0.03 percentage points lower on the day at 4.63 per cent.