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US treasury yield crosses 5% mark for the first time since 2007

The yield on the US 10-year treasury (US10Y) crossed the 5% mark for the first time in 16 years, as global investors expect the US Federal Reserve to continue the interest rate hike.

The US10Y yield reached 5.01% earlier today, even after US Federal Reserve Chairman, Jerome Powell’s recent signal that the central bank intends to maintain steady interest rates.

However, he maintained that the door for a possible hike was open if there were inflation risks.

In a speech last week, Powell noted,

  • “Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully.
  • “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks.”

This surge indicates that investors are betting on another interest rate hike by the US Federal Reserve.

In reacting to the situation, Adetola Freeman, the Regional Analyst for FBS Africa noted,

  • “Two likely outcomes; in normal market scenarios, we would expect a decline in economic output since it becomes more expensive for the government to borrow funds, leading to slower economic growth. Given the recent hostilities between several countries, demand for US-made weapons could mitigate the impact of the rising borrowing rates.
  • “The stock markets are the likely victim in all of this as some investors may seek to diversify their investments into the bonds market.” He added.

What you should know

From the US to Nigeria, the bond market has been experiencing bearish sentiments since last week. In Nigeria, the average benchmark yield on the Nigerian Treasury Bills increased by 40 basis points to 6.92% last week.

Also, investors in the NT-bills market experienced a notable drop in prices for mid and long-term investments, with average yields increasing by 11 basis points (bps) and 41 bps, respectively.

Particularly, the most significant spikes were seen in the 11-Apr-24, 12-Sep-24, and 26-Sep-24 bills, which surged by 44 bps, 93 bps, and 100 bps week-over-week.

Meanwhile, on October 25, 2023, the CBN plans to rollover NT-bills worth N108.13 billion spreading across the 91-, 182-, and 364-Day instruments during the Primary Market Auction.

 


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