The US bond market has become the biggest story in global finance this week, with long-term Treasury yields spiking to their highest levels in decades. The 10-year yield is over 4.6%, while the 30-year yield tops 5.1%. This sell-off has sent mortgage rates climbing again, spooked stock markets, and inspired a safe-haven pattern.
The panic is attributed to a deepening supply-demand imbalance in Treasuries, combined with a major fiscal accelerant – a Trump-backed tax bill that’s projected to increase the federal deficit by hundreds of billions over the next decade. The House passed the bill on Thursday, prompting traders to sell bonds en masse.
A poorly received 20-year Treasury auction also fueled fears that there may be too much supply hitting the market too fast, with not enough buyers. This has led to a surge in mortgage rates, reaching 7.08% – the highest level in over three months.
The implications for consumers are already being felt, as housing becomes even less affordable. President Donald Trump’s announcement of considering re-privatizing Fannie Mae and Freddie Mac has also added to the turmoil, raising concerns about credit downgrades and higher mortgage rates.
The Federal Reserve is now facing a tough decision: whether to suppress yields by buying bonds or allow interest rates to rise, which could hurt the economy. Billionaire Ray Dalio warns that either path comes at a high cost, risking inflation if the Fed prints money. With investors demanding higher returns for holding US debt and no obvious marginal buyer left, it’s clear that Washington has made the Fed’s job harder.
Source: https://qz.com/bond-market-selloff-week-of-may-22-1851781869