I can’t jump. I played basketball my freshman year in high school, and I loved playing at one particular school in our conference because in warmups I could touch the net. I should mention their net was torn and had a three-inch dangling string but regardless, on that court I felt like I had a Michael Jordan vertical.
The 10-year yield jumped to the significant 2% mark in the last few days because of the latest inflation numbers.
Investors follow the U.S. Treasury bond yields not only for investment, but also as an indicator of investor confidence. Bonds are basically a loan and the issuer, in this case, the US government, pays you interest until they return the amount they borrowed from you. Treasury bonds range in maturity, but it’s the 10-year Treasury yield that is most closely watched as a market indicator.
Often inflation expectations affect the yield conditions which is what is happening right now. A bond’s worst enemy is inflation because it eats away at the purchasing power of a bond’s future cash flows. The higher the rate of inflation the higher the bond yields will need to rise to compensate investors for taking more inflation risk.
The 10-year yield rose to 1.987% on Wednesday, February 9, after briefly hitting 2% for the first time since 2019, according to Tradeweb. This jump in yield came after the Labor Department said U.S. inflation accelerated to a 7.5% annual rate in January which was higher than expected.
When this rate jumps up like this during times of rising inflation it shows that the investors are getting nervous and demanding more income to offset the higher risk they are taking. It looks like investors are thinking that inflation might not decline as quickly as they hoped.
I couldn’t jump, but I could foul and foul I did.
Have a blessed week!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.