The rise in long-term interest rates has a great impact on the US economy, as mortgage rates, for example, depend on them. Prior to today’s Treasury sell-off, the average 30-year U.S. mortgage rate was 5.27%, the highest since 2009, according to Bloomberg.
Yield chart for 10-year US government bonds at 1-day intervals. Source: Trading View
Wednesday evening, May 4, the yield on 10-year US government bonds fell sharply from 3.0% to 2.92% following comments Fed Chairman Jerome Powell that the regulator does not plan to increase the step of raising rates from 0.50% to 0.75%. However, the market did not stay calm for long, and today the yield of 10-year Treasuries soared from 2.93% in a little over three hours to a new record value since the end of 2018 at 3.10%.
“Yesterday’s comments by Jerome Powell can hardly be called dovish, so the resumption of the dominant trends for the decline in the US stock market, as well as for the growth of Treasury yields and the dollar exchange rate, resumed. Thus, the concept of “buy on expectations (Fed meetings) and sell following the fact” did not work,” says Oleg Syrovatkin, Leading Analyst of the Global Research Department “Opening Investments”. “High inflation in the US is at least partly due to the strength of the US economy, but other pro-inflationary factors remain relevant. For example, the conflict over Ukraine, which keeps global energy prices high, as well as lockdowns in China, creating disruptions in supply chains.”
The rise in long-term interest rates has a great impact on the US economy, as mortgage rates, for example, depend on them. Prior to today’s Treasury sell-off, the average 30-year U.S. mortgage rate was 5.27%, the highest since 2009, according to Bloomberg.
The situation is aggravated by the fact that in recent years, and especially months, the S&P 500 and US government bonds have often shown high correlationreminds Oleg Syrovatkin. This greatly destabilizes traditional 60/40 portfolios (60% stocks and 40% bonds – approx. ProFinance.ru) and increases market volatility.
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