The surge in long-term Treasury yields is likely to keep interest rates high — jeopardizing the Fed’s long-crafted plans for a soft landing, Wall Street analysts said.
The yield on 30-year Treasuries, which is the annual interest rate that the US government pays on its debt obligations, briefly surpassed the 5% threshold on Wednesday before retreating to 4.89% after the Labor Department released its latest unemployment figures Thursday.
The high bond yields make it more expensive for consumers and companies to borrow money, thereby undercutting the economy and increasing the risk of a recession.
“Ultimately, the feedback effect starts to fuel fears that you’re going to have a hard landing,” RJ Gallo, a senior portfolio manager for Federated Hermes, told Bloomberg News.
The federal government said on Thursday that there were 207,000 jobless claims filed in the week ending Sept. 30 — up slightly from 205,000 the previous week but below the 210,000 claims that economists had forecast.
The continued resilience of the job market has Wall Street anticipating further interest rate hikes by the Federal Reserve, which had hoped that its tightening policies of the past two years would be enough to stave off a recession and bring about a “soft landing” for the economy.
The yield on the 10-year Treasury, which influences rates for mortgages and other loans, jumped past 4.50% in September and continues rising.
It is at its highest level in nearly two decades.
The yield on the two-year Treasury, which tracks expectations for the Fed’s interest rate policy, jumped above 5.00% in September and also continues edging higher.
“Once again, the move in rates has proven to be too much too fast for equity markets to handle,” said Adam Turnquist, chief technical strategist at LPL Financial, in a note to investors.
The Dow Jones Industrial Average was down by around 0.22% as of 10 a.m. Eastern time on Thursday while the Nasdaq fell 0.75%.
The S&P 500 index was trading at 0.47% lower on Thursday morning.
The rise in yields coupled with rising federal budget deficits, an auto workers strike and a resumption of student loan payments could send the economy into a recession, according to Anna Wong, the chief economist for Bloomberg Economics.
Earlier this week, Fed officials said that monetary policy will need to stay restrictive for “some time” to bring inflation back down to the 2% target, but their unity around that phrase masks an ongoing debate over another possible rate hike this year.
“I remain willing to support raising the federal funds rate at a future meeting if the incoming data indicates that progress on inflation has stalled or is too slow to bring inflation to 2% in a timely way,” Fed Governor Michelle Bowman said Monday in prepared remarks to a banking conference.
Inflation, as measured by the consumer price index, is down from around 9% last year to around 3.7% at last read, slowed at least in part by the Fed’s series of rate hikes over the last 18 months.
Given that progress, the Fed last month opted to keep the policy rate in its current 5.25%-5.50% range even as most signaled another rate hike would likely be needed before year’s end.
With Post wires
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