One of the world’s most important interest rates hit levels this week not reached in more than 16 years, putting pressure on the economy and stock markets.
The 10-year Treasury yield, a measure of how much it costs the U.S. government to borrow money that is widely used as a benchmark for all types of debt, fell below 5 percent for the first time since mid-2007. Has been reduced compared to.
The sharp rise in the 10-year yield in recent months has attracted the attention of investors, economists and policymakers. Economists at ratings agency Moody’s warned that this “sudden, rapid growth” has shaken confidence in the continued resilience of the economy, threatening to “disrupt the US economic expansion”.
The Federal Reserve controls short-term interest rates, which influence the economy through market-based rates like Treasury yields and the cost of borrowing on long-term debt like mortgages and company bonds.
But unlike gradual, deliberate changes in rates enacted by the Fed, changes in longer-term market rates, such as the 10-year Treasury yield, are less predictable and subject to many factors. These steps are very important for the economy, and they could change the behavior of consumers and companies facing suddenly higher borrowing costs.
As 10-year yields have risen, the rally that lifted the S&P 500 at the beginning of the year has stalled, with the benchmark stock market index falling in six of the last seven trading sessions.
The 10-year Treasury yield also significantly impacts consumer rates: The average 30-year mortgage has recently reached close to 8 percent And credit card rates are now above 20 percent,
Borrowing costs are rising around the world along with Treasury yields. Its impact has been particularly pronounced for emerging market economies, which have to contend with the double whammy of higher yields and a stronger US dollar, making debt repayments more expensive for countries with dollar-denominated debt.
Fed Chair, Jerome H. Powell, recently noted the rapid rise in market rates and its potential impact on the economy, including the central bank’s decision whether to raise its key rate again or keep it steady.
“A range of uncertainties, both old and new, complicate our task of balancing the risks of tightening monetary policy too much with the risks of tightening too little,” he said on Thursday.
