The 10-year Treasury yield is closing in on 5% as traders brace for this week's Federal Reserve rate decision, with fed funds futures now pricing an 86.7% chance of a quarter-point hike. Goldman Sachs, JPMorgan and HSBC have all shifted their forecasts toward a September move after August's inflation data came in firm. The S&P 500 was still up more than 11% for the year even as long-term yields climbed.
The 10-year Treasury yield is hovering around 4.96%, within striking distance of the 5% mark it last touched in October 2023. The benchmark yield rose to 4.992% on Friday, its highest level since that point, before edging back down.
Rate hike bets converge on September
Goldman Sachs, JPMorgan and HSBC have all moved toward expecting a 25 basis point hike in September, having previously forecast no change this month. HSBC and JPMorgan now expect the Fed to raise rates in both September and December, while Deutsche Bank has added another quarter-point move in March 2027 to its forecast. Goldman economist David Mericle explained the shift: "We think that the FOMC will be reluctant to surprise", since markets are already pricing in the move.
Inflation and oil keep pressure on yields
The consumer price index rose a seasonally adjusted 0.4% in August, putting the 12-month inflation rate at 3.4% — still far above the Fed's 2% goal. JPMorgan economists pointed to rising bond yields, higher energy prices and firm inflation data as reasons a September rate hike now looks more likely than not. Oil's return above $100 a barrel has added another source of price pressure on top of heavy Treasury issuance.
What 5% yields would mean for stocks
Higher yields aren't necessarily bearish if paired with healthy growth, said Jason Ware, chief investment officer at Albion Financial Group, arguing stocks would be more vulnerable to a slowdown in consumer spending than to the 10-year crossing an arbitrary threshold. Niall O'Sullivan, chief investment officer at Marsh Investments, noted that many of the companies driving the equity rally aren't especially sensitive to higher rates. BMO Capital Markets observed that when the 10-year reached 4.85%, equity weakness stayed modest and the S&P 500 was still up more than 11% for the year.
Sources: CNBC, InvestingLive
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