US | Treasury yields climb as markets out-hawk the Fed

The reassessment of the policy outlook has pushed Treasury yields sharply higher, with the 10-year yield reaching around 5.3% as markets price in resilient growth: the rise in nominal yields has been almost entirely matched by higher real yields.

Key points

• Key points:
• While the median FOMC projection points to just one additional hike, markets are pricing in between three and four additional rate hikes by September 2027.
• The cooler-than-expected core PCE print released this week and downward revisions to past data were not enough to stop long-term rates from climbing further.
• Term premia continue to keep a high floor under long-term Treasury yields, but the upward shift in the policy path has given the US dollar renewed momentum.
• Yields pushed mortgage rates even higher, deepening the drag on the housing sector. Credit spreads remain very low, possibly reflecting increased competition for capital.
• The recent increase in volatility has not translated into funding pressures while broader financial stress remains contained despite persistently high interest rates.

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