The 10 year Treasury yield held above 5 percent as the market priced a December Federal Reserve hike at 100 percent, with the producer price data due on Friday morning. The 10-year Treasury yield at 5.127 percent on Friday morning, after closing at 5.10 percent on November 12, puts borrowing costs at a level that squeezes housing, stocks and corporate balance sheets at the same time.
Why it matters
The yield moved fast this week. As the Treasury market reopened after Veterans Day, the 10 year yield rose more than 13 basis points to 5.125 percent, according to CNBC, and the two year note is on track for its worst week since 2024. The move followed the hotter than expected October consumer price report, which showed prices rising 0.4 percent in the month against forecasts of 0.3 percent.
The market has already made up its mind about December. Rate futures price an 87.4 percent chance of a 25 basis point hike and a 12.6 percent chance of a 50 basis point hike at the December 8 and 9 meeting, and swaps traders price at least a quarter point hike with a strong likelihood of another in January. Federal Reserve officials have been blunt, with John Williams saying inflation is far too high.
What happens next
The housing market is feeling the squeeze first. Existing home sales slumped 5.5 percent to an annual rate of 3.75 million units, the lowest since 2010, and the 10 year yield is the benchmark that mortgage rates follow. Higher yields mean higher monthly payments, and higher payments mean fewer buyers.
For now, the yield is the story and the producer price data is the test. If the reading comes in hot, the case for a bigger December move strengthens and yields climb further. If it cools, the market gets room to breathe. Friday morning will decide which way the bond market goes.
The housing market is feeling the squeeze first. Existing home sales slumped 5.5 percent to an annual rate of 3.75 million units, the lowest since 2010, and the 10 year yield is the benchmark that mortgage rates follow. Higher yields mean higher monthly payments, and higher payments mean fewer buyers.
