U.S. Bond Yields Creeping Toward 3%

By CUToday.info03.05.2018

For the first time in years, long-term U.S. bond yields are creeping within reach of 3%, an indicator of investors’ confidence in the global economy. But what does it mean for credit union CFOs?

Significant implications for financial markets are to be expected. The half-percentage-point rise 2018 in the 10-year U.S. Treasury note yield have led many analysts to suggest that previous hypotheses that growth and interest rates will remain depressed for years as economies around the globe grapple with stalled wage growth and soft employment are no longer valid, according to analysis by the Wall Street Journal.

Instead, concerns now center on long-dormant inflation and central banks’ efforts to step back from extraordinary stimulus measures, the journal noted, adding the yield on the 10-year U.S. Treasury note was 2.88% Friday after hitting 2.91% two days earlier, its highest level in four years. That is up from 2.41% at the end of 2017.

At the same time, as the Fed raises interest rates and reduces the size of its bond portfolio, it is pulling money out of the economy at the same time financial markets are becoming increasingly volatile. Some investors and analysts said that those crosscurrents could help push yields past that 3% for the first time since 2013, the journal reported.

“Even now, yields remain low by pre-crisis standards,” the journal reported. “What’s more, long-term market pricing remains less than euphoric, reflecting fears that climbing yields over time will slow the economy by making borrowing more expensive for consumers and businesses. The implied inflation forecast from inflation-indexed Treasuries this year has peaked at 2.14% for the next 10 years. The implied forecast from inflation bonds maturing in 2047 is just 2.13%. That suggests that growth continues to face structural challenges such as an aging population, rising debt burdens and sluggish productivity growth.”

Reprinted with permission from CUToday.info, a leading source of news and resources for credit union decision-makers.