{"id":13089,"date":"2024-04-03T17:39:02","date_gmt":"2024-04-03T17:39:02","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13089"},"modified":"2024-04-03T17:39:28","modified_gmt":"2024-04-03T17:39:28","slug":"understanding-the-surge-in-10-year-u-s-treasury-bond-yields","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/understanding-the-surge-in-10-year-u-s-treasury-bond-yields\/","title":{"rendered":"Understanding The Surge In 10-Year U.S. Treasury Bond Yields"},"content":{"rendered":"\n

Judy T. from Dallas, TX asks:<\/em> Mitch, there\u2019s pretty much constant talk about interest rates falling this year, with the Federal Reserve cutting borrowing rates. But I\u2019ve noticed that Treasury bonds keep going up, which seems like the opposite of what should be happening. Can you explain?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you, Judy, that\u2019s a sharp observation. To provide readers with context, we can take a look at a chart of the 10-year U.S. Treasury bond over the past couple of years. As seen below, the trendline is positive\u2014yields have soared from around 1.5% two years ago to over 4.0% today. And since the beginning of 2024, when the notion of rate cuts became more definitive than hypothetical, 10-year Treasury bond yields crept up about 30 basis points.<\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis1<\/sup><\/strong><\/em><\/figcaption><\/figure>\n\n\n\n

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It also covers a range of key tax issues, such as:<\/p>\n\n\n\n

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So, to your point, when investors and consumers were expecting borrowing costs like mortgage rates, credit card rates, and corporate bond rates to fall, they\u2019ve risen instead. What gives?<\/p>\n\n\n\n

There are a few factors at work. The first one to consider is that Treasury bond yields largely reflect investor expectations about the fed funds rate over the life of a bond. At present, the Fed funds rate is between 5.25% and 5.5%, and investors have been in the process of recalibrating expectations. First, it was six rate cuts, now it\u2019s three. Treasury yields have followed suit essentially, rising as investor expectations for the Fed funds rate have risen too.<\/p>\n\n\n\n

Another factor keeping a bit of upward pressure on the 10-year is the end of quantitative easing (QE) and the Fed\u2019s shrinking balance sheet. During the era of QE, the Fed was a major buyer of mortgage securities and Treasury debt, which kept upward pressure on bond prices (and downward pressure on yields). Now that the reverse is happening, there\u2019s less demand, meaning less upward pressure on price.<\/p>\n\n\n\n

In terms of what factors could keep upward pressure on 10-year U.S. Treasury bond yields from here, it\u2019s really about inflation and economic growth. If inflation and\/or economic growth accelerates in 2024, it would pressure the Fed to keep short-term rates elevated, which would cause investors to again scale back bets on rate cuts. That could keep the 10-year U.S. Treasury bond in the 4% to 5% range.<\/p>\n\n\n\n

Last week brought some good news on that front\u2014the Fed\u2019s preferred inflation gauge, the PCE price index, came in at 2.5% year-over-year. That was in line with expectations.<\/p>\n\n\n\n

With economic factors stabilizing, now is the perfect time to tackle your tax planning and ensure it doesn’t become a headache within the next few weeks!<\/p>\n\n\n\n

Our user-friendly guide, Tax Planning in 20243<\/sup><\/a><\/span><\/strong><\/em>, provides an overview of the many issues involved in tax planning, including ways you can reduce your tax burden. This guide is by no means exhaustive, but offers a solid resource you can use to have more effective discussions with your family and tax advisors. It covers:<\/p>\n\n\n\n

\u2022 Investments\u2014including tax loss harvesting, loss carryover, investment interest expense deductions, and many more topics.
\u2022 Healthcare and Education\u2014from the Child Tax Credit to Health Savings Accounts to 529 plans and more.
\u2022 Retirement Planning\u2014Traditional and Roth IRAs, catch-up contributions, Required Minimum Distributions and other essential topics.
\u2022 Charitable Giving & Estate Planning\u2014Gifting strategies, Donor-Advised Funds, private foundations and other ways to help yourself as you help others.<\/p>\n\n\n\n

If you have $500,000 or more to invest and want to learn more, click on the link below:<\/p>\n","protected":false},"excerpt":{"rendered":"

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