But 5% was considered normal to low in the decades before the Fed’s financial repression kicked off in 2008.
By Wolf Richter for WOLF STREET.
The 10-year Treasury yield rose to 5.01% this morning, briefly, before backtracking a few basis points, the highest since October 23, 2023, when it had spiked to 5.02% for a few moments, before plunging. And beyond that, the highest yields since 2007.
Today, the 5% yield is made out to be a big deal because after 14 years of the Fed’s financial repression, during which it purchased trillions of dollars in Treasury securities and MBS with newly created money, it seems very high. But before financial repression kicked off in 2008, a 10-year yield of 5% was normal to low.
So now that the 10-year yield tested the 5% again, will it re-open the floodgates of demand, as 5% had done last time? Or will it have staying power and stick around 5%? Hourly chart via Investing.com:
The last time it hit 5.02% for a few moments was on October 23, 2023, after a majestic six-month 170 basis-point surge that was too fast too soon, and the floodgates of demand opened at this yield, while sellers stopped selling, and near instantly the yield began to plunge, by 19 basis points intraday to 4.83%, and by over 120 basis points by yearend to 3.79%.
That’s how that first run at 5% since 2007 ended. Here is the hourly spectacle on October 23, 2023:
So we’re glued to our screens watching this breathless drama of the basis points. Will the floodgates of demand open again? Or will investors just nibble enough for a day or two to dent the yield by a few basis points, before the yield rises beyond 5.0% as new investors demand higher yields to be drawn in?
But that 5% is not high when compared to periods before the Fed’s financial repression wrecked the bond market.
In case you missed it: The economy did fine with a 10-year yield of 5-8%, including in the 1990s, amid a tight labor market and lots of economic growth. Read: The 10-Year Treasury Yield over 5%? Some Thoughts
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:
Yep, only taken 14 years to correct Bernankes theories.
The bind market should get a Nobel Prize for common sense.
I wonder if the Nobel prize committee can
demand their prize back from Bernanke ?
With inflation so close to 4%, the ten year yield should be at least 6%.
Remember how Jerome had to put out a statement like he was being held h0stage? Perhaps this is now Kevin’s way of going around it to let the market show its hand first what the Fed then already have do have done automagically.
Yea the LT bond market is overdue for a yield correction / bond rally.
The thing to notice in Wolf’s zig zag charts is that the line never goes one direction for ever. DO NOT commit the extrapolation fallacy.
I’m looking hard at locking in a few perpetual preferred stocks, which have been beaten down by rising treasury yields and act a bit like long-duration corporate bonds. For example, OZKAP now yields 7.5%. Its price could pop upward very hard if the FOMC hikes rates tomorrow and shows it is serious about inflation. But if the Fed’s message is “we’re all talk” then there’s no limit to how high rates could go or how low preferred stock prices could go!