The rally is scary, with the U.S. 10-year Treasury rate topping 5% per annum. Is the 5% Treasury bond era sticking around? Rising interest rates in the U.S. have been having a major impact on global financial markets recently, and they are an important variable for our economy as well. Recent interest rate movements are reminiscent of the 2007-2008 global financial crisis.
Recent Trends in U.S. Treasury Rates
For the first time since the 2007 global financial crisis, the U.S. 10-year Treasury rate broke above 5.0% per annum. In particular, on October 19, it was recorded at 5.001%, which was also confirmed by Tradeweb and Reuters. This uptick is the first in 16 years, since July 2007. However, not all ecommerce platforms showed the same results. (Some platforms didn’t even break the 5% mark).
Causes and outlook for rising interest rates
There are a number of factors behind these rising rates. US Federal Reserve (Fed) Chairman Jerome Powell assessed that inflation in the US remains high. “Inflation is still too high, and the recent positive indicators are only the beginning of a decline in inflation,” he said. He also said that economic growth and labor market stability are needed to keep inflation at the 2% level.
In addition, economic data from the US is performing better than expected. Retail sales growth for September, released on Sept. 18, significantly exceeded experts’ expectations and is being cited as one of the main reasons for the rise in interest rates. The U.S. government’s widening deficit and increased issuance of long-term Treasury securities are also pushing rates higher.
Leading figures on Wall Street are also voicing the need to prepare for these higher interest rates. JPMorgan Chase CEO Jamie Dimon warned that investors should prepare for the possibility of interest rates rising to 7%. Joseph Davis, head of Vanguard, a large U.S. asset manager, said that the neutral rate is significantly higher than it has been in the past and predicted that the Fed may have to raise the benchmark rate up to three more times.
The rise in U.S. Treasury rates is expected to have a major impact on global financial markets. Right now, currency markets and global stock markets are shaking. It will be an important variable for our economy and investments, so we need to continue to pay attention and prepare.
