Long-dated Treasury yields reach multi-decade highs and the 30-year mortgage passes 7%

The US 10-year Treasury yield rose to 5.23%, its highest level since 2007⁷. It was holding at 5.20% late in the week after peaking at a 19-year high of 5.228%¹, a level it had touched earlier in the week as well⁸. The 30-year yield reached a 22-year high^1,2 and moved above 5.5%³. Yields edged lower by the end of the week but remained at multi-year highs⁹.

The move was not confined to the United States. Yields on Japan’s 10-year bonds rose to their highest level in three decades during a global bond selloff that pushed borrowing rates higher, with US Treasury yields hovering above 5%⁵. Trading Economics attributed the pressure on Treasuries to strong economic activity and to concerns over the fiscal outlook⁹.

Why it matters to investors

The repricing is concentrated at the long end of the curve. Friday’s moves widened the gaps between short- and long-dated yields, including the two-year to 10-year and five-year segments³. That is the part of the curve that sets mortgage rates and the discount rate applied to long-duration assets.

The pass-through to housing is already visible. Average 30-year mortgage rates hit 7.03%, the first time they have surpassed 7% since the beginning of last year⁶. The effect of rates topping that level is rippling through the market for buyers, sellers and builders⁶.

Not every investor reads the level as a warning. CNBC reported that the 19-year high in the 10-year yield has some investors seeing an opportunity to buy bonds, which typically make fixed interest payments for the life of the security⁴.

What to watch

Whether the long end keeps diverging from the front end. VT Markets tied the 30-year move to expectations of further Federal Reserve tightening and pointed to elevated oil prices and rising inflation expectations as reasons to hedge against more yield-curve volatility². ThinkMarkets linked the move in the 10-year to expectations that the Federal Reserve and the European Central Bank will act to contain inflationary pressures⁸.

Auction demand is the other gauge. Trading Economics noted the reception at the week’s two-year Treasury auction alongside the fiscal concerns weighing on the market⁹. With Japanese yields at three-decade highs⁵, the question is whether domestic buyers in Tokyo continue to find local paper more attractive than US paper.