Overview
- Yields on long-dated U.S. Treasuries climbed to multi-year highs on Tuesday, with the 30-year around 5.32% and the 10-year above 4.7%, and the average 30-year fixed mortgage rate near 6.75%.
- Fixed income strategists say the run-up began in June and has been driven by persistent inflation, a larger budget shortfall, heavy corporate bond issuance and a higher term premium demanded by investors.
- Higher Treasury yields are already raising costs for consumers by lifting mortgage rates and by putting upward pressure on new auto loans, credit-card APRs and interest on new student debt.
- The jump in yields is increasing the government's cost to borrow, with debt financing totaling about $1.12 trillion through July and projected to reach roughly $1.37 trillion for the full fiscal year after a $432.3 billion July shortfall.
- Markets will watch Fed communications, the pace of Treasury and corporate supply, and foreign demand for U.S. debt because those factors will determine whether yields stay higher and when consumer and corporate borrowing costs ease.