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The 10-year Treasury yield rose above 5 percent on Monday for the first time in 16 years, extending a several-week slide in bonds as investors bet the Federal Reserve will keep interest rates at their current high levels for longer.
The 10-year yield, the benchmark for asset prices around the world, rose 0.078 percentage points to 5 percent, the highest since July 2007, continuing a steady repricing of government debt fueled by better-than-expected economic data and an increase in the supply of government bonds.
Longer-term Treasury yields have risen since the Fed indicated in the so-called dot plot of its September meeting that officials expect a slower path to rate cuts in 2024 and 2025. Strong U.S. economic data has only gotten worse since then, with investors expecting the Fed will likely keep interest rates high for longer.
A flurry of data in recent weeks suggests the U.S. economy is in good shape, despite the Fed’s historic rate hikes over the past 18 months. Last week, the Commerce Department reported that U.S. retail sales rose more than expected in September. This data followed Labor Department data earlier in the month that showed a dramatic increase in hiring in September.
In the futures market, traders bet that interest rates would be at 4.7 percent by the end of 2024, compared with expectations of 4.2 percent in early September.
The latest move in Treasury yields came after Fed Chairman Jay Powell signaled on Thursday that the U.S. central bank was prepared to forego a rate hike at its next meeting in November.
Powell said the bank would proceed “cautiously” in interest rate decisions and expressed caution ahead of the planned “blackout” period ahead of its two-day meeting that begins Oct. 31.
Analysts said the Fed’s caution about raising interest rates while growth is still strong has helped push up longer-term bond yields as investors bet that interest rates will have to stay high for an extended period of time to keep inflation down reduce.