On Wednesday, the U.S. 10-year Treasury note yield peaked at its highest level since November 2023 before slightly declining, allowing major stock indexes to rise. However, analysts caution that this relief may be temporary, as the upward trend in bond yields may not be over.
Ben Emons, founder and CIO at FedWatch Advisors, noted that current market pricing reflects only 60 basis points of expected rate hikes through the end of the year, while the recent yield increase suggests a potential rate-hike path of approximately 120 basis points over a longer timeframe.
Factors contributing to rising yields include energy prices, tariffs, AI-driven capital expenditures, heavy bond issuance, and a robust economy. The CME Group's FedWatch tool indicates a 66% probability of a quarter-percentage point rate increase at the upcoming Federal Reserve meeting.
Additionally, rising oil prices, currently around $90 per barrel, could further pressure monetary policy if they approach $100. Julia Hermann from New York Life Investment Management and Yung-Yu Ma from PNC both expressed that the forces driving long-term rates higher remain unchanged, with fiscal risks and uncertainty regarding the Fed's inflation strategy contributing to this trend.
They suggest that unless there is a significant geopolitical breakthrough leading to lower oil prices, long-term interest rates are likely to continue rising, which could create volatility in equity markets