For the first time since December of 2018, the yield on US 10-year Treasury notes has hit 3 percent. This concern comes on growing concerns that the Federal Reserve will raise interest rates, again, which will exacerbate already stressful inflation conditions. This is twice the rate we saw at the beginning of the year and, again, the highest since end of 2018. Fortunately, the rate slipped to 2.99 percent by mid-afternoon on Monday, this week, but still closed out the day 0.05 percentage points for the day.
These measures are important, of course, because the yield on government bonds has a powerful effect on the US economy. For example, US 10-year Treasury note yield contributes to home mortgage rates and borrowing costs for corporate entities. When the yield is high, bond prices start to fall, and that will almost certainly put more strain on increasingly tighter financial conditions as the US attempts to recover from two years of pandemic complications.
Higher US 10-year Treasury yields are not necessarily a surprise, as growing inflation is often a cause for this. As a matter of fact, US inflation registered as high as 8.5 percent, annually, in March. This is the fastest inflation growth rate in the past four decades. And now, high inflation everywhere coupled with weaker global economic outlook has raised major concerns that the Fed will eventually raise interest rates and overburden the economy.
Sure enough, the Fed is expected to announce a greater interest rate jump of half a percentage point when it concludes its next policy meeting, Wednesday. Furthermore, future markets are currently pricing paralleled half-point increases at their next two meetings.
As such, analysts now expect that short-term US interest rates will likely register at 2.5 percent by the end of this year. This is quite a big jump from the current range of 0.25 to 0.5 percent. With that, investors are surely bracing for higher interest rates.