CBS: The Bond Market Is Freaking Out as Yields Hit Multi-Decade Highs

Per CBS, the bond market is flashing red again, with long-dated Treasury yields ripping to levels not seen in more than two decades. Traders are repricing inflation risk, Fed policy, and U.S. debt sustainability all at once.

What CBS is reporting

The yield on the 30-year Treasury note reached 5.44% on Wednesday, its highest level since 2004, before slipping slightly on Thursday morning. The 10-year Treasury, which influences mortgage rates, briefly neared 5.15% on Thursday morning, a level it last reached in 2001.

Yields had already risen amid concerns about inflation and growing U.S. debt. They jumped further on Wednesday after stronger-than-expected economic data led investors to price in additional interest-rate hikes as the Federal Reserve battles inflation.

Why yields are ripping

The bond market got a major jolt on Wednesday after purchasing managers’ data showed that U.S. business activity is growing at its fastest pace in years, while costs for corporate America are also rising quickly. On Thursday, a government report showed that fewer U.S. workers applied for unemployment benefits last week, further strengthening expectations for the economy.

A hotter economy could add to inflationary pressures, while a solid job market gives the Fed more leeway to raise borrowing costs. Several members of the central bank’s Federal Open Market Committee also signaled this week that they favor further increases.

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The macro angle

Higher long-end yields tighten financial conditions without the Fed lifting a finger. Mortgages, corporate credit, and equity valuations all take a hit when the 10-year pushes toward 5.15%.

Geopolitics is layered on top. Wall Street analysts said investors are increasingly concerned about a protracted conflict in the Middle East, with the U.S. and Iran exchanging fresh threats at this week’s United Nations General Assembly in New York.

Options market and stocks to watch

Watch TLT for continued pressure as long-duration Treasuries get repriced, and watch the ETF for hedging flow and put activity if yields keep climbing.

Watch TBT, the inverse long-bond ETF, for follow-through if the selloff extends.

Watch the homebuilders like XHB and lenders like RKT as mortgage rates track the 10-year higher.

Watch the big banks such as JPM for net interest margin implications and any signs of stress in credit books tied to higher-for-longer rates.

Watch SPY for the broader equity reaction, especially rate-sensitive tech names, if yields refuse to cool. See other news for more.

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