With Prolonged High Interest Rates Expected... US 10-Year Treasury Yield Surpasses 4.5%

The US 10-year Treasury yield, which serves as a benchmark for global bond yields, surpassed the 4.5% level, hitting its highest point in 16 years. This follows the Federal Reserve's (Fed) indication of prolonged high interest rates, continuing to impact the bond market. This week, a series of remarks from Fed officials, including Fed Chair Jerome Powell, are scheduled.

In the New York bond market on the 25th (local time) around 4 p.m., the 10-year yield rose more than 10 basis points (1bp = 0.01 percentage points) from the previous session to 4.544%. This is the highest level since October 2007, before the global financial crisis. The 10-year yield continued its upward trend during the day, reaching as high as 4.548% at one point. The 2-year yield, which is sensitive to monetary policy, also exceeded 5.12%.

This is interpreted as a result of the market's growing expectation that high interest rates may persist longer than anticipated following the September Federal Open Market Committee (FOMC) meeting, which signaled further rate hikes. In the September dot plot, the Fed raised the median interest rate forecast for the end of 2024 from 4.6% to 5.1%, and for the end of 2025 from 3.4% to 3.9%. This suggests that even if rate cuts begin next year, high rates in the 5% range will continue.

Additionally, recent oil-driven inflation has increased market uncertainty and added upward pressure on Treasury yields. Richard Chambers, head of repo trading at Goldman Sachs, conveyed that "the market recognizes that rates will be higher in the medium to long term." The Wall Street Journal (WSJ) analyzed that "the main driver of bond market movements is the robust US economy despite aggressive tightening."

Remarks from Fed officials released on the day also supported the outlook for prolonged high rates. Austan Goolsbee, president of the Chicago Federal Reserve Bank and considered a prominent dove within the Fed, appeared on CNBC's Squawk Box and stated, "It is becoming more important how long rates stay at a high level rather than how high they go." He also evaluated the previously released dot plot as "indicating that the tightening cycle will be longer than the market expects."

This week, remarks from Chair Powell and other officials, including John Williams, president of the New York Fed and considered the Fed's third-ranking official, are expected to continue. Attention is focused on whether their comments on monetary policy will lead to further increases in Treasury yields. Additionally, on the 29th, the Fed's preferred inflation gauge, the August Personal Consumption Expenditures (PCE) price index, will be released. Wall Street expects the PCE increase to moderate to around 3.9% year-over-year. Other economic indicators, such as the finalized US second-quarter Gross Domestic Product (GDP) and the University of Michigan Consumer Sentiment Index, will also be released during the week.

Meanwhile, despite the rise in Treasury yields and concerns over a potential US federal government shutdown, the New York stock market closed slightly higher due to confirmed rebound buying. The tech-heavy Nasdaq index rose 0.45% from the previous session. The Dow Jones Industrial Average and the S&P 500 closed up 0.13% and 0.40%, respectively.

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