Soaring US Treasury Yields... 10-Year Bond Nears 5% Threshold (Comprehensive)

New York Market Surpasses 4.8%
30-Year Bond Yield Hits 4.93%
Fed Signals Prolonged High Interest Rates Impact
Ray Dalio: "Rates Will Rise to 5%"
Yellen: "Prolonged High Rates Not Inevitable," Attempts Reassurance

The yield on the U.S. 10-year Treasury note, which serves as a benchmark for global bond yields, has surpassed 4.8%. Amid the Federal Reserve's (Fed) indication of prolonged high interest rates, overheating in the U.S. labor market and hawkish remarks from Fed officials have fueled bond sell-offs. As fears of a '5% interest rate' rapidly spread in the market, U.S. Treasury Secretary Janet Yellen stepped in to ease concerns, stating that prolonged high interest rates are not necessarily an inevitable outcome.

U.S. 10-Year Treasury Yield Surpasses 4.8%

[Image source=Reuters Yonhap News]

As of 4 p.m. local time on the 3rd in the New York bond market, the 10-year yield was trading above 4.80%, up more than 11 basis points (1bp=0.01 percentage points) from the previous session. This is the highest level since August 2007. The 30-year yield also rose to 4.93%, approaching the 5% mark. The 2-year yield, which is sensitive to monetary policy, climbed to around 5.15%.

Market sentiment toward bonds weakened as expectations grew that the Fed's high interest rate stance could last longer than initially anticipated. According to the Job Openings and Labor Turnover Survey (JOLTs) released by the U.S. Department of Labor that day, private sector job openings in August increased by 690,000 to 9.61 million, far exceeding the Dow Jones estimate of 8.8 million, reinforcing expectations of prolonged Fed tightening.

Recent comments from Fed officials also reflected a hawkish tone. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said that while he "wants to pause," "it will take a long time before rate cuts." Loretta Mester, President of the Cleveland Fed, emphasized the need for further rate hikes the previous day. Fed Vice Chair Michael Barr stated, "The most important question at this point is not whether additional rate hikes are needed this year, but how long rates need to be maintained at sufficiently restrictive levels," signaling prolonged high rates.

At last month's Federal Open Market Committee (FOMC) meeting, the Fed held rates steady but raised its rate projections for next year and the year after through the dot plot. Notably, the median rate forecast for the end of next year was raised from 4.6% to 5.1%, suggesting that high rates above 5% will persist.

Projections of 10-Year Yield Surpassing 5% Continue

Ray Dalio, Founder of Bridgewater Associates

The market expects that the yield on long-term U.S. Treasury bonds will soon exceed 5%. Ray Dalio, billionaire founder of Bridgewater Associates and known as the 'godfather of hedge funds,' said at the Greenwich Economic Forum held in Greenwich, Connecticut, that he expects hotter inflation to persist longer, stating, "There is no certainty, but it looks like the 5% yield will come." He explained, "Inflation is around 3.5%, higher than the Fed's 2% target. Achieving 2% without significant pain does not seem possible. This is why the Fed is maintaining current rates." He also cited the U.S. government's massive issuance of Treasury bonds as a factor driving yields higher. Dalio explained, "The supply is abnormally high as the government needs to sell more bonds, and there is still a large amount left, while buyers are less inclined to purchase for various reasons."

Billionaire hedge fund manager Bill Ackman also appeared on CNBC the previous day, predicting, "The 30-year yield will be in the mid-5% range, and the 10-year yield will approach 5%." Ed Yardeni, head of Yardeni Research, noted in a report that "rising federal deficits have fueled concerns about bond supply," diagnosing that so-called 'bond vigilantes' are marching by selling large amounts of Treasuries to push yields higher. Jamie Dimon, chairman of JPMorgan Chase and dubbed the 'emperor of Wall Street,' even mentioned yields in the 7% range the day before. In a Bloomberg TV interview, he said, "When I previously said rates would reach 5%, people asked if that was really true. Yields in the 7% range are also possible."

Jamie Dimon, Chairman of JP Morgan Chase

Yellen Calms Market Concerns: "Prolonged High Rates Are Not a Foregone Conclusion"

Janet Yellen, U.S. Secretary of the Treasury
Photo by Yonhap News

As bond yields surged and market anxiety grew, Secretary Yellen immediately moved to calm fears, stating that prolonged high interest rates are by no means a predetermined scenario. Speaking at the Fortune CEO Initiative Conference in Washington D.C., Yellen said, "People are trying to figure out exactly what is needed to continue lowering inflation," adding, "While the economic resilience currently observed might suggest a more prolonged (rate) environment, we need to wait and see. This is not predetermined." Although yields have risen more sharply than expected, she emphasized that the Fed's stance on prolonged high rates cannot be considered definitive.

Regarding rate forecasts, she noted that there are both upward and downward factors and said she "does not know" whether bond yields will remain elevated. While nominal yields have risen significantly, she also predicted that yields will return to more normal levels in the medium term.

Yellen described the U.S. government's rapidly increasing debt, which is fueling the rise in Treasury yields, as manageable. The U.S. Treasury plans to issue about $1 trillion in bonds in the third quarter of this year, marking the first quarterly increase in borrowing in about two and a half years.

On the U.S. economy, she expressed a "very optimistic" outlook. Yellen explained, "Consumer spending remains strong, and investment spending is also solid. The housing market has stabilized and appears to be rising. Considering the very strong labor market, short-term inflation is easing."

Nevertheless, despite Yellen's remarks, Treasury yields soared, and the New York stock market closed sharply lower. The Dow Jones Industrial Average, composed of blue-chip stocks, fell 1.29% from the previous session. The large-cap S&P 500 index dropped 1.37%, and the tech-heavy Nasdaq index declined 1.87%. Meanwhile, the U.S. dollar surged. The dollar index, which measures the dollar's value against six major currencies, surpassed the 107 level.

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