Treasury Yields Keep Surging. What's Going On?

On Wednesday, the 10-year Treasury yield reached levels it has not seen since the Great Recession. This extends a trend in which the yield climbed for five out of the last six weeks. We'll look at what's driving yields so rapidly.

On Wednesday, the benchmark 10-year yield reached an intraday peak of 4.927%. According to Dow Jones Market Data, this is the highest intraday rate since July 25, 2007 when it peaked at 4.945%.

This is a long way from the 0.5% low of August 2020. Investors are concerned about the 10-year yield, which has accelerated from 3.3% to 4.5% since April.

Numerous economic reports have shown that the economy is resilient. The economy exceeded expectations in the retail sales figures released on Tuesday.

This has led traders to believe that the Federal Reserve will continue to raise interest rates even though some Fed officials are rethinking their monetary policies.

Scott Wren, Senior Global Market Strategy at Wells Fargo, said in their Market Commentary that "Rates have room to rise, but most of the upward movement in yields has already passed us."

Treasury Yields Increase as Government Spending Rises

Charles Schwab's projections indicate that the federal budget deficit will continue to grow and is projected to reach $1.7 trillion by September of this fiscal year.

The federal debt is $33 trillion. Schwab Chief Investment Strategy Liz Ann Sonders stated in the report that federal debt continues to grow faster than the GDP, and as the government has to pay more interest on its borrowing.

In the report, Liz Ann Sonders stated that "the Fed, U.S. Banks, and State/Local Governments are all reducing their Treasury Securities holdings."

Wells Fargo Senior Global Markets Analyst Scott Wren stated in a recent report that the government will be issuing a large amount of short-term debts to fund its spending habits.

Investors demand higher interest rates for long-term bonds than short-term ones, as they are locking up their money longer. Net interest expenses are increasing as a result. Interest expense on government debt is 2.8% of GDP and, if this trend continues, it will surpass what the U.S. pays for defense.