Investors Fret as Daunting Bond Market Milestone Comes Into View

The 10-year U.S. Treasury yield has threatened to break above 5 percent for the first time in 16 years, rattling the markets.

Investors Fret as Daunting Bond Market Milestone Comes Into View

This week, one of the most important rates in the world flirted at a level that it hadn't achieved in over 16 years. The pressure was put on the economy and stock market.

The 10-year Treasury yield - a measure of the cost of borrowing for the U.S. Government that is widely used to benchmark all types of lending - has surpassed 5 percent for first time since 2007.

Investors, economists and government officials have been paying attention to the steep rise of the 10-year yield over the past few months. The'sudden rapid increase' in yields on 10-year bonds has captured the attention of investors, economists and policymakers.

The Federal Reserve controls the short-term rates. These rates ripple throughout the economy through market-based rates such as Treasury yields, and borrowing costs for longer-term debts like mortgages and corporate bonds.

But unlike the Fed's gradual and deliberate rate changes, movements in the longer-term market, such as the yield on the 10-year Treasury, are unpredictable and dependent on many factors. These changes are important for the economy and can affect the behavior of companies and consumers when faced with sudden increases in borrowing costs.

The rally that propelled S&P 500 higher in the first half of the year has now stalled. In six out of seven trading sessions, the benchmark index has declined.

The yield on the 10-year Treasury also affects important consumer rates. The 30-year average mortgage rate has recently decreased.

Around 8 percent

Credit card rates have now decreased

Above 20 percent


The cost of borrowing around the globe tends to increase along with Treasury yields. This effect is particularly noticeable for emerging markets, where they have to deal with both higher yields and the strengthening of the U.S. Dollar, increasing debt payment costs for countries that hold dollar-denominated bonds.

Jerome H. Powell (the Fed chair) recently commented on the rapid rise of market rates, and their potential impact on the economy. He also noted that the central bank would have to decide whether it wants to increase its key rate or not.

He said that a range of old and new uncertainties complicate the task of balancing between the risks of tightening the monetary policy excessively against the risks of tightening it too little.