WASHINGTON- Rising Treasury bond yields and home mortgage rates may reduce support at the US Federal Reserve for additional interest rate increases, the prospect of which have already been ebbing on the basis of weaker inflation.
The Fed raised interest rates at its July meeting by a quarter of a percentage point, to a range of between 5.25 percent and 5.5 percent , a widely anticipated move investors have construed as the central bank’s last step in an aggressive 16-month rate hike campaign to slow inflation from 40-year highs.
But bond yields since then have raced higher, with the interest rate on a 10-year US Treasury security rising from around 3.86 percent the day of the Fed’s July 26 rate decision to as high as 4.32 percent on Thursday.
Rates on a 30-year home mortgage in the US rose to 7.09 percent , breaching the 7 percent level for the first time since November and marking a more than 20-year high.
Stock markets – which can offer investors higher returns but also higher risk versus less volatile assets like Treasury bonds – have declined, with the S&P 500 reversing a five-month climb to fall about 2.6 percent since the Fed’s last meeting.
Investors in contracts tied to the Fed’s benchmark interest rate added to bets that it will move no higher, a view shared by 99 of 110 economists polled by Reuters this week who also see the risk of a US recession in decline.
The recent climb in yields has been fast enough and surprising enough that “the Fed will be monitoring bond market developments – and the wider fall-out across asset markets – carefully,” said Evercore ISI vice chair Krishna Guha. – Reuters
