Benchmark 10-Year Treasury Note Yield Reaches 4-Year High

Monday May 2nd marked a new milestone as the yield on the benchmark 10-year Treasury note rose to 3% for the first time since November 2018, having jumped from 1.496% at the end of 2021. While rising yields are often associated with a strengthening economy, in this case it was triggered by the Federal Reserve signaling a rapid series of interest-rate increases in an effort to rein in inflation that is running at its fastest pace in decades in an extremely tight labor market, causing the steep climb in yields to send shock waves through the market. Looking ahead, interest-rate derivatives show that investors expect the Fed to increase its benchmark federal-funds rate to just above 3% in 2023. However, the Fed could be prompted to pause its tightening efforts amid economic setbacks including further declines in riskier assets such as stocks, with the recent jump in yields already contributing to stock declines that sent the S&P 500 down about 13% on the year while triggering 30-year mortgage rates to climb above 5%.