10-Year Government Bond Yield Temporarily Rises Above 4% Before Sinking Again – What Does It Mean?

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It has been a topsy-turvy ride for the benchmark 10-year Treasury yield, which spent part of Wednesday hitting its highest point in 14 years and then the other part recording its biggest drop in two years.

The yield on the 10-year Treasury fell 25 basis points to 3.705% late on Wednesday, Sept. 28, CNBC reported, the most it has declined since 2020. Earlier in the session, the yield reached a high of about 4.019% — the highest level since October 2008.

Economists are keeping a close eye on the 10-year Treasury yield because it’s considered an indicator of wide investor confidence as well as a proxy for mortgage rates and other important financial metrics.

Earlier this week there was a major inversion of the yield curve, with the 1-year treasury rising 50 basis points above the 10-year treasury yield, Forbes reported. This goes against the usual pattern, which is a flattening of the yield curve. An inverted curve typically signals economic uncertainty — including the increased likelihood of a recession.

The reason the U.S. benchmark rate fell so quickly after hitting a 14-year high has to do with events overseas — specifically the Bank of England’s announcement that it would buy older U.K. debt to help stabilize its sinking currency, CNBC noted.

“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability,” the Bank of England said in a statement. “This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”

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The Bank of England announcement caused U.S. bond yields to fall sharply, with the 30-year yield falling by more than a percentage point to just below 4%, The New York Times reported.

“We’ve seen a dramatic reversal, but this is hardly a well-functioning market,” Richard McGuire, a strategist at Rabobank, told the NYT. “There’s very thin liquidity.”

As CNBC noted, U.S. Treasury yields have largely been on the rise of late amid comments from Federal Reserve officials suggesting that the central bank will continue to hike interest rates in an effort to ease soaring inflation.

But not all Fed officials sound convinced that continuing to increase rates is the best strategy. Chicago Federal Reserve President Charles Evans recently voiced concern to CNBC’s “Squawk Box Europe” that rates are being hiked too quickly, though he also remains “cautiously optimistic” that a recession can be avoided.

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