Treasury yields turn higher as markets refocus on possible December rate hikes

US and eurozone government bond yields turned higher Monday, reversing earlier declines as investors returned their attention to economic conditions and the possibility of December rate hikes by the Federal Reserve and European Central Bank.^[1]

A bond's yield is the return implied by its current price; yields rise when bond prices fall. The report describes a shift in expectations about future policy, with December rate decisions still ahead.^[1]

Renewed attention to possible rate hikes puts the policy outlook back at the center of bond pricing.^[1] In the supplied Treasury data, the two-year yield stood at 4.56% on November 9, up 0.05 percentage points from the prior session. The 10-year rose 0.02 percentage points to 4.88%, while the 30-year was unchanged at 5.26%.

Treasury yields help set the price of many loans and corporate bonds. If yields stay elevated, businesses face less relief on the cost of new borrowing or replacing maturing debt, potentially squeezing profits and investment budgets. Higher bond returns also raise the return investors demand from stocks, pressuring valuations most dependent on earnings far in the future.

Impact

• Real estate and homebuildingRisk

  If benchmark yields remain elevated, property businesses get less relief when refinancing debt, while mortgage costs may stay high for buyers, constraining demand for developers and homebuilders.^[1]

• Growth stocks valued on future earningsRisk

  Investors may demand higher returns, reducing the share prices they are willing to pay for distant profits. Growth businesses that borrow to fund expansion may also face higher financing costs.^[1]

What to watch next

• US October consumer price index (CPI), November 10 at 13:30 UTC: core monthly inflation is forecast at 0.2%, down from 0.3%. A higher-than-expected reading could reinforce rate-hike concerns; a lower reading could ease upward pressure on yields.