NEW YORK–2022 has begun with a bond rout that pushed longer-term interest rates to new pandemic-era highs.
The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, jumped in just one day from its year-end close of 1.496% to 1.628%. By Jan. 7, it had settled at 1.769%, “smashing through its 2021 closing high of 1.749% to reach its highest level since January 2020, before officials reported the first COVID-19 case in the U.S.,” noted the Wall Street Journal.
The increase in yields didn’t come as a complete surprise, as markets have been expecting the Federal Reserve to start pushing up short-term interest rates, the Journal noted, but “still, the jump in yields happened faster than most had anticipated and sparked significant volatility.”
The increase comes at the same time the average 30-year mortgage rate recently hit a two-year high at 3.22%.
‘One Simple Reason’
“Investors and analysts point to one simple reason why yields could keep climbing this year: Despite the recent selloff, bond yields still reflect investors’ expectations that the Fed won’t raise rates as high as central-bank officials have indicated they think is likely,” the Journal said in its analysis. “Interest-rate derivatives suggested Friday that investors think short-term rates will reach around 1.7% in four years and then hang around close to that level for the rest of the next decade. By contrast, most Fed officials at their last meeting indicated that they think the rates will average 2.5% over the longer run. That estimate doesn’t account for the possibility that the central bank could raise rates above that so-called neutral level to slow the economy and curb inflation.”