The 10-year Treasury yield briefly surpassed 5% last week, a figure not seen since 2007.
This percentage isn’t necessarily alarming on its own. But its swift ascent is.
The Federal Reserve’s interest rate policy is the main culprit behind the sharp rise of the 10-year Treasury yield. At the onset of the pandemic, the Fed slashed interest rates to zero, before raising them in the face of rampant inflation to a range of 5.25%-5.5% currently.
Looking at history, big changes in interest rate policy precede times of financial turmoil. Examples include the Black Monday stock market crash of 1987.
And while the central bank isn’t expected to hike rates further at this week’s policy meeting, it has made clear that rates will likely be “higher for longer”.
It’s not always clear why higher rates lead to market woes, not least because there are often many different factors, and dynamics at play.
No matter the case, higher interest rates have tangible ramifications for countless Americans, especially those with adjustable-rate debts, or those in need of taking out new debt. Last week, the 30-year fixed-rate mortgage sat just below a two-decade high of 8%.
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