Treasury yields climb as investors weigh a Fed rate hike

The US 10-year Treasury yield rose further on November 12 amid speculation that the Federal Reserve could raise interest rates. A bond's yield measures its return relative to its current price; yields rise as bond prices fall. The reported prospect of a Fed hike remains market speculation.^[1]

The supplied Treasury data show the increase spanning short- and long-term rates: on November 12, the 10-year yield stood at 5.10%, up 0.12 percentage points from November 10, while the two-year rose from 4.73% to 4.86%. The 10-year Treasury is an important pricing reference for mortgages and long-term corporate borrowing. If yields stay elevated, homebuyers and businesses taking out or replacing loans may face higher interest costs, squeezing purchasing budgets, investment and profits.

Higher Treasury yields also raise the return investors require from stocks. That can reduce the value investors assign today to future earnings, particularly for growth companies whose share prices depend heavily on profits expected years ahead. The reported speculation about a Fed hike makes this interest-rate pressure a risk for investors to monitor.^[1]

Impact

• Growth stocksRisk

  Investors may demand higher expected returns and pay less for earnings far in the future. Companies with valuations heavily dependent on future growth can face pressure even if their earnings forecasts are unchanged.^[1]

• Housing and real estateRisk

  If higher Treasury yields feed into mortgage rates, buyers face larger loan payments, potentially weakening demand for homebuilders. Property businesses refinancing debt may also face higher interest costs.^[1]

• Bond investmentsNeutral

  Rising yields reduce the market value of existing fixed-rate bonds, with longer-maturity bonds generally more sensitive. Investors buying bonds at the new prices can obtain higher yields.^[1]

What to watch next

• November 13 at 13:30 UTC: October's Producer Price Index measures changes in prices received by producers. Monthly growth is forecast at 0.4%, versus 1.3% previously; the core measure excluding food and energy is forecast at 0.3%, versus 0.7%. Stronger readings could reinforce inflation and rate concerns.
• November 18 at 19:00 UTC: Fed meeting minutes will show whether policymakers' discussion of inflation and the rate outlook supports speculation about a hike.