Treasury yield spike inflicts pain on borrowers
- Matt Phillips, author of Axios Markets
Yields on U.S. government bonds — known as Treasuries — rocketed in recent days, as Friday's inflation report convinced many that a combination of persistently high inflation and aggressive Federal Reserve interest hikes, is on the way.
Driving the news: The yield on the 10-year Treasury note surged to nearly 3.50% in recent days, a level not seen since 2011.
Why it matters: The yield on the benchmark 10-year note is the most important number in financial markets, and arguably the world.
- It's the foundation that investors worldwide use to build the models that determine the interest rates that borrowers — from home buyers locking in a mortgage to Fortune 500 companies placing multibillion-dollar bond deals — should pay.
- That means it's a quick-and-dirty way to assess the cost of borrowing in an economy.
When Treasury yields rise, almost everybody else pays more — sometimes a lot more.
- One example: Rates on 30-year fixed-rate mortgages surged to over 6% on Tuesday — from 3.16% six months ago — worsening an already dismal affordability picture for would-be homebuyers.
The bottom line: Add this to the growing list of ominous signs for the U.S. economy ... The Fed's trying to slow things down, without tipping the economy into an outright recession — but that's looking like a tougher path to walk lately.