Treasury Yields Near 5%: Five Pressure Points to Watch — SkimNews
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- 10-year Treasury yields touched 4.8% on Friday, hitting their highest since October 2023 and nearing 5% — a level not held for long in almost two decades — with the sell-off beginning after the war with Iran.
- U.S. nominal GDP growth ran at 6.56% in Q2, up from 6.07% in Q1, keeping 10-year borrowing costs below the economy's growth rate and giving Washington room to keep expanding deficits without the debt burden spiraling, economists say.
- U.S. government debt recently passed the US$40-trillion milestone as a long-standing fiscal deficit has been widening, fueling the competing view that the bond sell-off — 'mild as it has been by many measures' — presages more pain ahead.
- Long-term real Treasury rates rose to 2.92% this week from 2.55% at year-end, with TD Securities' Gennadiy Goldberg saying the recent yield rise has been 'driven predominantly by real rates,' not inflation expectations despite Kevin Warsh now heading the Federal Reserve.
- Societe Generale's Albert Edwards flagged that the ratio of 30-year Treasury yield to stock dividend yield is at its highest since the dot-com bust of 2000, warning a 'highly valued market is a fragile one' even if it doesn't 'in itself trigger a bear market.'
- Deal-making is bracing for a slowdown, with one hedge fund manager telling investors fear had crept into conversations with bankers and buyers ahead of Labor Day, and several investors reporting a noticeable drop in what buyers are willing to pay.
- Investment-grade credit spreads sit near historically tight levels, reflecting the strength of the biggest firms but signaling that investors have limited protection should credit conditions start to deteriorate, the article notes.
Why it matters: If 10-year yields break and hold above 5%, corporate refinancing costs will rise for the AI and data-center capex already pressuring earnings, and a deal pipeline investors describe as 'fearful' pre-Labor Day could push closing timelines out by months.
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