The yields on U.S. Treasury bonds are experiencing a rapid and uncontrollable increase, causing repercussions in financial markets. On October 3rd, the 10-year Treasury yield reached its highest level since August 2007, surpassing 4.75%. As a result, the value of Treasuries has plummeted to levels not seen in over 15 years.
This increase in yields is inversely related to bond prices, leading to significant losses for certain ETFs. The US Treasury 10 Year Note ETF has registered five consecutive months of losses, declining by over 10% since its peak in March 2023. The iShares 10-20 Year Treasury Bond ETF is currently trading at the lowest level since July 2007.
Even longer-dated Treasuries, as tracked by the iShares 20+ Year Treasury Bond ETF, have lost over half of their value since the start of the pandemic in March 2020, reaching levels last seen in August 2007.
The rising Treasury yields have had a widespread impact, affecting various assets such as stocks and gold. The S&P 500 Index, a measure of the stock market’s health, recently experienced its toughest month of the year, setting a pessimistic tone for October. Gold, typically considered a safe haven in times of uncertainty, is also being affected by the higher Treasury rates.
There are several factors contributing to the rise in Treasury yields, including the U.S. government’s expanding budget deficit, the Federal Reserve’s quantitative tightening program, and its restrictive stance on interest rates. The growing deficit necessitates the issuance of more bonds, leading to an oversupply and higher yields. Additionally, the Fed’s efforts to reduce its balance sheet and its desire to maintain elevated interest rates contribute to the upward pressure on yields.
It is uncertain how high the 10-year Treasury yields can go, but if October sees another surge, it will mark the longest streak of monthly increases since 1999. The next resistance level is the psychological 5% mark, followed by previous highs from 2007 and 2002. Although yields above 5% are not uncommon historically, they have the potential to impact various sectors and asset classes.
Overall, the rise in Treasury yields is causing significant disruptions in financial markets and raising concerns among investors.