The 10-year U.S. Treasury yield touched 5% on Monday for the first time since 2023, two days before the Federal Reserve's rate decision. Traders now put the odds of a quarter-point hike at 90%, while the S&P 500 has so far absorbed the move better than the Nasdaq 100.
The 10-year U.S. Treasury yield touched 5% on Monday, up more than two basis points and the highest level since October 2023. The yield stood at 5.01% in morning trading on Wall Street, up 0.04 percentage points on the day. The move lands two days ahead of a Federal Reserve meeting where traders anticipate the first rate hike in three years.
Yields close in on pre-crisis levels
If the 10-year moves beyond 5.02%, it would reach its highest level since July 2007, before the Global Financial Crisis. Besides a brief rise to 5% in 2023, the last time 10-year borrowing costs hovered above that level was in the lead-up to the 2008 financial crisis. The 2-year Treasury yield advanced more than two basis points to 4.666%, while the 30-year yield added two basis points to 5.374%.
Rising crude oil prices have added to the pressure: Brent crude jumped more than 4% to $108.86 a barrel on Monday, feeding the same inflation concerns pushing yields higher.
Fed hike odds climb to 90%
August consumer price data matched expectations on Friday while remaining far above the Fed's 2% goal, as it has for the past five years. As a result, odds of a quarter-point hike now stand at 90%, according to the CME Group FedWatch tool.
Jay Woods, chief market strategist at Freedom Capital Markets, said: "Hiking would be the cleaner decision based on the data and current market expectations."
S&P 500 holds up better than the Nasdaq
BMO Capital Markets noted that when the 10-year previously reached 4.85%, weakness in equities remained modest and the S&P 500 was still up more than 11% for the year. By contrast, the Nasdaq 100 fell 1.4% in morning trade Monday, following declines across Europe and Asia.
Treasury Secretary Scott Bessent has tried to contain the move with an expanded bond buyback program, but such measures have limited ability to constrain yields against the fundamental forces pushing them higher. For now, investors appear willing to tolerate higher yields.
Sources: US Top News and Analysis, Markets
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