10-Year Yield Edges Toward 5% Before Fed Decision — SkimNews
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- 10-year Treasury yield fell 1 basis point to 4.968% Monday after touching 4.992% on Friday — its highest level since October 2023 — while the rate-sensitive 2-year slid 3 basis points to 4.611%
- Federal Reserve rate-hike odds stood at 86.7% for this week's policy meeting, based on 30-day fed funds futures, after the Bureau of Labor Statistics reported August CPI rose 0.4% monthly and 3.4% annually — matching Dow Jones consensus but far above the 2% target
- Albion Financial Group CIO Jason Ware attributed part of the yield rise to a supply-demand imbalance from heavy Treasury and corporate issuance, arguing markets won't break simply because the 10-year crosses 5% given a resilient economy and steady core inflation
- BMO Capital Markets strategists said an expanded buyback program could limit selling pressure but "fails to address the prevailing fundamental drivers of the upward pressure on 10- and 30-year yields," as Treasury Secretary Scott Bessent's intervention efforts fell flat
- Gibraltar Capital principal George Awad highlighted large leveraged hedge-fund exposure in the cash-futures basis trade, warning a spike in funding costs or margin requirements could force simultaneous unwinds and amplify a selloff
- Marsh Investments CIO Niall O'Sullivan noted the companies powering the equity rally aren't especially rate-sensitive and that heavy capital expenditure is supporting strong growth, while BMO observed the S&P 500 remained up more than 11% year-to-date even when the 10-year hit 4.85%
Why it matters: The 5% mark on the 10-year is psychological, not structural — what drives it there matters. If resilient growth and capex (per Ware and O'Sullivan) push yields higher, equities can absorb the move; if a widening term premium from large federal deficits, heavy debt issuance and oil above $100 push it instead, the threshold starts to bite. Bessent's buybacks can't offset those structural forces, and leveraged basis-trade unwinds could turn an orderly rise into a disorderly one.
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