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Inflation Fears Push U.S. Treasury Yields to Highest in Six Months

Daniel Kim Views  

Jerome Powell, Chair of the Federal Reserve / Reuters Yonhap News
Jerome Powell, Chair of the Federal Reserve / Reuters Yonhap News

Renewed inflation fears in the United States have pushed the yield on 10-year Treasury bonds to its highest level in six months.

On Friday, the Financial Times(FT) reported that the yield on 10-year U.S. Treasury bonds jumped 0.09 percentage points to 4.59%, reaching its peak in six months since May. Analysts say the Federal Reserve’s hawkish stance on monetary policy the previous day had an impact. Despite lowering the benchmark rate by a quarter point, the Fed raised its inflation forecast for the coming year and scaled back projected rate cuts from 1.0 to 0.5 percentage points.

The FT explained that the yield on the 10-year Treasury bonds surged by 0.2% over two days as investors began to reconsider their expectations for Fed policy over the next 12 months.

Long-term Treasury yields are particularly sensitive to inflation risks. That’s because higher inflation projections typically demand greater yields on long-term investments to offset potential losses in actual returns. The market’s expectation that the Fed will maintain high interest rates to combat inflation also influences Treasury yields. In a parallel move, the Bank of England(BOE)’s warning about persistent inflation risks and its decision to freeze its key interest rates pushed 10-year UK gilt yields to a one-year high of 4.66%. 

Many analysts attribute the Fed’s heightened inflation vigilance to the potential re-election of Donald Trump. Economists warn that Trump’s proposed policies – including substantial tax cuts, high import tariffs, and mass deportation of undocumented immigrants – could fuel inflationary pressures. Andrew Bailey, Governor of the Bank of England, also commented on Trump’s tariff plan, noting that it has substantially increased uncertainty in trade policy. He further stated that the bank cannot commit to specific timing or magnitude of rate cuts for the coming year due to the increased economic unpredictability.

Daniel Kim
content@viewusglobal.com

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