US Treasury Yields Surge, Fed Rate Hike Looms

The US bond market is under pressure as Treasury yields continue to rise. The 10-Year Treasury Note yield recently topped 5% for the first time since 2023 and has reached its highest level since 2007, at 5.04%. The 2-year and 30-year yields are also increasing, hitting 4.65% and 5.37%, respectively.

This surge in yields is putting the Federal Reserve in focus as it begins a two-day rate-setting meeting today. Rate futures markets are pricing in a near certainty that the Fed will hike rates by 25 basis points to a range of 3.75% to 4%. Another increase is also increasingly likely in the next few months.

The rise in yields is affecting mortgage rates, which have risen back up around 7%, contributing to a moribund housing market. Treasury Secretary Scott Bessent has attempted to curb longer-term rates by announcing government bond buybacks, but these efforts have only had a short-term impact. The iShares Core US Aggregate Bond ETF (AGG) is down about 4.2% year-to-date.