The Federal Reserve’s interest rate cuts aimed to lower borrowing costs but are facing resistance from bond markets. The yield on the benchmark 10-year Treasury surged above 4.8% last week, its highest level since November 2023, while the 30-year counterpart is close to hitting 5%. Rising rates will impact mortgage and loan costs.
A strong jobs report in December fueled concerns that the Fed’s rate-cutting cycle may be over. The Bureau of Labor Statistics revealed nonfarm payrolls grew by 256,000, exceeding expectations. Investors are now wondering if the Fed will slash rates or even hike them to combat rising prices.
The stock market has responded negatively, with the S&P 500 sinking 2.5% in the past five days. Long-term bond yields are seen as a key area to focus on, according to investment strategist Ross Mayfield. Elevated borrowing costs burden economic activity and compress valuation multiples, weighing on stock prices.
Some analysts believe the bond sell-off presents an opportunity for investors to jump back into fixed-income markets. However, others warn that the surge in yields makes sense due to investor concerns about a short-term economic downturn and demand for higher returns. The Fed’s rate-cutting cycle may be nearing its end, but the bar for further hikes remains high.
As the economy enters 2025, investors should consider the implications of potential policy changes under President-elect Donald Trump. Tariffs, tax cuts, and mass deportations could lead to inflationary pressures, affecting bond yields and stock prices.
Source: https://fortune.com/2025/01/13/bonds-yields-are-rising-like-crazy-what-that-means-for-investors