US Treasury Yield Tops 5% Ahead of Fed Decision

The US 10-year Treasury yield has climbed to its highest level since October 2023, reaching 5% on Monday. This move comes ahead of the Federal Reserve's interest-rate decision later this week.

Investors are positioning for a 25-basis-point rate hike, with the CME Group FedWatch tool putting the probability at 90%. Prime Terminal showed the odds at 93%.

Jay Woods, chief market strategist at Freedom Capital Markets, said that based on economic data and current market expectations, 'a rate hike would be the cleaner decision.' He also noted that markets have already priced in a hike and could rally following the decision.

The rise in Treasury yields has been attributed to several factors, including large federal deficits, heavy debt issuance, and persistent inflation. The 10-year yield has reached a psychologically important level, and further increases could become more challenging for equities if investors demand greater compensation for inflation and fiscal risks.