US 10-Year back at 5% as global tightening wave pushes
- US 10-year yield returns to 5% after Fed hike.
- BoJ joins tightening wave as global inflation risks persist.
- October and December Fed hike odds keep yields elevated.
US Treasury yields rose on Friday, boosted mainly by the Federal Reserve’s decision to increase rates on Wednesday, while the Bank of Japan added its name to the list of major central banks focused on preventing inflation from getting out of control.
Treasury yields climb as Fed and BoJ hikes reinforce inflation fears
The yield on the US 10-year Treasury note is up over six basis points at 5%, shy of Tuesday’s 5.041%, the highest since 2007.
Uncertainty around the Middle East conflict pushed Oil prices higher, increasing the risk of upside inflation. Consequently, major central banks are stepping in to raise interest rates.
On Friday, the Bank of Japan (BoJ), in a 7-2 vote, increased interest rates by 25 basis points to 1.25%, its highest level in 31 years. Meanwhile, on Wednesday, the Federal Reserve unanimously opted for a rate hike of the same size as the BoJ, the first increase in three years, recognising that inflation is well above the Fed’s 2% goal.
The jump in US bond yields is moving in tandem with traders pricing in further rate hikes by the Fed. For the end of 2026, money markets priced in 34 basis points of tightening. The odds of a hike in October are 55%, and in December, 90%, according to Prime Terminal.
US Industrial Production remained flat from July to August at 0% MoM, falling short of July’s 0.2% and the expected 0.3% growth.
Next week, the US economic schedule includes speeches from Federal Reserve officials, jobs reports, S&P Flash PMIs, and Durable Goods Orders.
US 10-year Treasury yield – Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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