Economists see 90% probability of rate hike this month
The yield on the 10-year U.S. Treasury note reached 5.014% early Monday before declining to 4.95%, as the Federal Open Market Committee prepared to meet later this week to deliver its next interest rate decision. The 5% level, last seen in 2023 and before that in 2007, when the United States fell into the Great Recession, is seen as an indicator of economic stress reflected in higher borrowing costs.
Ten-year Treasury yields stood at 4.15% at the beginning of the year. Prior to 2023, 10-year Treasury note yields had not touched 5% since 2007, when the United States fell into the Great Recession.
The yield spread between the 10-year note and the 2-year note stood at 0.33 percentage points on Monday. The real yield on 10-year Treasury Inflation-Protected Securities, which strips out expected inflation, was 2.55%.
Inflation remains above the Federal Reserve’s 2% annual target. Data from the U.S. Bureau of Labor Statistics released last week showed a core consumer price index rate of 3.4%, the central bank’s preferred measure.
Sticky inflation and other economic markers have raised the expectation that the Fed will raise its target interest rates this year, which currently sit in the 3.5% to 3.75% range. Economists place the likelihood of an interest rate hike coming this month at 90%.
“Hiking would be the cleaner decision based on the data and current market expectations,” Jay Woods, chief market strategist for the firm Freedom Capital Markets, told CNBC. “I believe the market has priced that in and may rally with a hike. No change may cause a negative market reaction as it screams once again the Fed is behind the curve.”
Two-year Treasury yields fell more than a basis point, or 0.01%, to 4.628% on Monday after reaching their highest rate in more than two years last week. The 30-year long bond yield fell more than two basis points to 5.328%.