U.S. Treasury yields break through the 'magical 5%' barrier... back to pre-financial crisis levels

[Financial News New York = Correspondent Lee Byeong-cheol]The yield on 10-year U.S. Treasury bonds surpassed 5% during trading, soaring to its highest level in about three years. Rising international oil prices, persistent inflation, massive fiscal deficits, and the burden of issuing government bonds are pushing up long-term interest rates.
The yield on the U.S. 10-year Treasury rose to 5.014% during trading on the 14th (local time), reaching its highest level since October 2023. It subsequently fell back to the 4.947% level. If the 10-year yield surpasses 5.02%, it will reach its highest level since July 2007, prior to the global financial crisis.
The 30-year yield also remained high at 5.321%. The 2-year yield, which is sensitive to the Federal Reserve's monetary policy, fell to 4.615% but recorded its highest level since July 2024 last week.
Market attention is turning to the Federal Open Market Committee (FOMC) meeting to be held on the 15th and 16th. Although the August Consumer Price Index (CPI) released last week met market expectations, the inflation rate still significantly exceeded the Fed's target of 2%.
According to the Chicago Mercantile Exchange (CME) FedWatch, the probability that the Federal Reserve will raise the benchmark interest rate by 0.25 percentage points at this meeting has risen to 90%. The surge in international oil prices is also reigniting inflation concerns.
Jay Woods, chief market strategist at Freedom Capital Markets, told CNBC, "Given current indicators and market expectations, a rate hike is the clearer decision." He added, "The market has already priced in the hike, and a freeze could be interpreted as a signal that the Fed is lagging behind in its response to inflation."
Analysis suggests that the rise in long-term interest rates is driven not only by inflation but also by U.S. fiscal issues. As massive fiscal deficits and large-scale government bond issuances lead investors to demand higher returns on holding long-term bonds, term premiums are increasing.
The market is focusing on the cause of the interest rate hike rather than the 10-year yield reaching 5% itself. Warnings are that if the rise is driven by robust growth, the stock market can withstand it; however, if the cause is inflation, fiscal instability, or worsening supply and demand in the government bond market, long-term interest rates in the 5% range could spread as a burden on the entire financial market.


[email protected] Correspondent Lee Byeong-cheol Reporter