Another Yield High as US 10-Year Jumps Above Key 4.5% Level in Post-Fed Bond Rout

Treasury 10-year yields rose above 4.5% for the first time since 2007 as a more hawkish Federal Reserve adds to concern the bonds face a toxic mix of large US fiscal deficits and persistent inflation.

US government debt is headed for a third year of losses as bets on a rapid Fed pivot from aggressive interest rate hikes evaporate again after the central bank on Wednesday raised its projections for future borrowing costs.

The resilience of the US economy in the face of the steepest rate increases for a generation is spurring a flight from bonds, given the likelihood of a soft landing that would rule out rapid policy easing in the coming year. Surging oil prices and a massive fiscal deficit also have traders bracing for further selloffs after this week’s rout sent yields on every benchmark Treasury maturity to the highest levels in more than a decade.

Fed's Hawkish Shift Leaves Treasuries Facing Losses

“The soft-landing scenario now being priced into markets is why we have seen a big repricing of the back end,” said Kellie Wood, a fund manager at Schroders Plc in Sydney, who has been shorting 10- and 30-year Treasuries. “The 10-year yield isn’t offering enough reward given the longer-term risks posed as investors come to the realization that deficits are so large at a time when the economy is operating at, or beyond, full employment.”

That economic outlook brings with it the risk the Fed will again confound investors by extending rate hikes, a prospect raised this week by JPMorgan Chase & Co. chief executive officer Jamie Dimon.