10-Year Treasury Yield jumped 0.13 percentage point today to 4.48%, the highest since July 2007. 10-Year Treasury Yield is the benchmark rate for many loan products, including mortgages and auto loans. After yesterday’s FOMC announcement, I believe it finally dawned on many investors that the rates are really going higher for longer and it could mean that the rates will remain high until 2026! A 0.13 percentage point (or 3%) move on 10-Year Treasury yield in a day is quite unusual and it signals weak demand for long-dated treasuries. With the jump, 8% mortgages are on the horizon, which is yet another blow to American consumers on top of oil price shocks, student loan payment restarts, ERC suspensions and tax payments due on October 15. It will be interesting to see what Q4 GDP growth will turn out to be but there are surely a lot of head-winds blowing hard.
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Long dated bonds much more subject to market narratives than short duration.
QT applies upward pressure on rates.
S&p, Powell, Dalio, ackman (and others can remember which) have all said in last two months longer duration needs to be higher. US not on fiscally sustainable path.
If back end keeps moving up then this will be the UK situation from a year ago and similar to 1970s. The US government will need to define an austerity type budget (7% YoY deficit is the opposite). needs to be near balanced immediately (not pretend balanced in 10 years from now) and fed will need to buy back end of curve.
The treasury has known demand at back of curve was a problem. They have been loading up short duration issuance the last 3 months since they started rebuilding TGA and have dialed down/kept flat longer duration.
Keep an eye on USD. The big issue is going to be if it starts falling at same time as long yield rates start going up. Right now it's been strong, so the scenario I describe isn't happening yet but it can quickly change into that type of scenario.