US 10-Year Treasury Yield Hits 15-Year High... Summers Says "It Will Rise Further"

US 10-Year Treasury Yield at 4.258%... Highest Since 2008
Former Secretary Summers Says It Will Rise to 4.75%

The yield on the U.S. 10-year Treasury note reached its highest level in 15 years amid expectations of a soft landing and forecasts of increased government bond issuance. Among them, former Treasury Secretary Larry Summers predicted that the 10-year U.S. Treasury yield will rise to 4.75% over the next decade.

According to Tradeweb, a U.S. bond trading platform, the 10-year Treasury yield closed at 4.258% on the 16th (local time). This is an increase from 4.220% the previous day and marks the highest closing level since June 2008, just before the Federal Reserve (Fed) implemented ultra-low interest rate policies following the Lehman Brothers collapse. It is more than 1.3 percentage points higher than the 20-year average 10-year Treasury yield of 2.9%, as compiled by Bloomberg News.

Expectations for a soft landing of the U.S. economy and forecasts of increased government bond issuance have driven yields higher. As expectations that the Fed will cut interest rates soon have diminished, more investors are betting on rising yields.

Retail sales for July, announced by the U.S. Department of Commerce the previous day, rose 0.7% month-over-month, marking the fourth consecutive month of growth. This is the largest increase in the past six months and significantly exceeds the market experts’ forecast of 0.4% surveyed by The Wall Street Journal (WSJ). Retail sales, which account for two-thirds of the U.S. real economy, are considered a pillar of the U.S. economy and a comprehensive indicator of economic health. Additionally, the July Consumer Price Index (CPI) inflation rate continued to ease, raising expectations for a soft landing.

The U.S. government’s fiscal deficit issue is also driving up the 10-year Treasury yield. Earlier, the U.S. Treasury Department indicated that it is expected to increase bond issuance to cover the fiscal deficit. When the Treasury increases bond issuance, the supply rises, causing bond prices to fall and yields, which move inversely, to rise.

Former Treasury Secretary Summers, who most accurately predicted the current inflation phase, expects the 10-year Treasury yield to rise further. In an interview with Bloomberg TV on the day, he said, "Investors will increasingly scrutinize the U.S. government’s fiscal deficit issue over time," adding, "I do not see the current long-term yield level as the peak."

Summers cited future inflation rising to 2.5%, above the Fed’s target of 2%, increased defense spending due to U.S.-China tensions, and rising interest costs as factors driving the 10-year yield higher. He predicted, "Adding a premium of 0.75 to 1.0 percentage points from long-term Treasury purchases, investors will see the 10-year yield rise to 4.75% over the next decade," and added, "It could rise even higher."

This content was produced with the assistance of AI translation services.