Wall Street is split on what to make of the 10-year Treasury yield briefly topping 5% on Monday for the first time since 2023, with veteran investor Ed Yardeni calling it confidence in the economy and others warning it’s just the start of a bigger climb, as the Federal Reserve’s interest rate decision looms Wednesday.
Is 5% a Warning Sign or a Vote of Confidence?
Yardeni told CNBC he’s “not terribly alarmed” by yields near 5%, calling it “a vote of confidence in the economy” that shows growth can withstand, and even justify, that level of borrowing costs.
He added that he’d only grow concerned if yields quickly jumped toward 6%, and predicted that if they did, Treasury Secretary Scott Bessent would likely “pull out a bazooka” by shifting new issuance toward more bills and fewer bonds to take pressure off the market, the same tactic former Treasury Secretary Janet Yellen used back in 2023.
Economist Mohamed El-Erian noted that the pressure isn’t unique to U.S. debt, pointing to an even sharper move in higher-beta G7 bonds like UK gilts.
Yields Have Further to Climb
Investor Peter Schiff said, “Don’t be fooled into thinking this is the top,” calling 5% “more likely just a launching pad to 6% and beyond.”
George Noble, a former Peter Lynch protégé, argued that Bessent’s attempt to calm the bond market by doubling Treasury buybacks in August has already failed.
“The bond market always wins,” Noble added.
What It Means for Wednesday’s Decision
Rate traders now put roughly a 93.5% probability on a hike at Wednesday’s FOMC meeting, according to the CME FedWatch tool. A 25-basis-point hike would be the Fed’s first increase since 2023.
Former Fed economist Claudia Sahm said a hike would be “costly medicine,” a modest step meant to push energy-driven costs into profit margins rather than consumer prices, not an attempt to force disinflation by crushing demand.
In a Substack post published Monday, Sahm cited a survey showing that 29 of 30 former Fed officials favor raising rates and argued the Fed shouldn’t wait until after the midterms, since delaying for political reasons would damage its credibility more than a hike itself.
Economist Justin Wolfers said the yields crossing 5% means “interest rates are high.”
Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) closed 0.09% lower on Monday at $90.93 and reversed course to climb 0.09% in extended trading. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) climbed 0.07% to close the session at $80.93.
The iShares 7-10 year Treasury Bond ETF has a Momentum score in the 22nd percentile and a negative price trend across the short, medium, and long term.
See More: Top Momentum Stocks
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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