The 10-year US Treasury yield just hit its highest level since 2011 ahead of the Fed's rate hike decision

  • The 10-year US Treasury yield surged to its highest level since 2011 on Monday, hitting a high of 3.51%.
  • Monday’s surge in Treasury yields came a day ahead of the Fed’s upcoming rate hike decision.
  • Treasury yields could keep soaring, with Fairlead Strategies’ Katie Stockton expecting a surge to 4% soon.

The 10-year US Treasury Yield surged to its highest level in more than a decade on Monday, one day ahead of the Federal Reserve’s FOMC meeting.

The 10-year yield hit a high of 3.51%, rising as much as 6 basis points before paring some of its gains for the day.

Not since April 2011 has the 10-year yield traded above 3.50%. That period was marked by the European debt crisis, in which several EU countries were grappling with the aftershocks of the 2008 great financial crisis and were on the brink of insolvency. 

After the European debt scare, interest rates did nothing but go down as the Federal Reserve loosened monetary policy and implemented a number of quantitative easing measures to help stimulate the economy and recover the growth lost during the Great Recession. 

But now the Fed is taking away the punch bowl from stock market investors as it hikes interest rates and reduces its $9 trillion balance sheet in hopes of reducing inflation and cooling the economy. The Fed has already raised interest rates by more than 200 basis points year-to-date, and most expect at least another 150 basis points in hikes before year-end.

At Tuesday’s Federal Open Market Committee meeting, Fed Chairman Jerome Powell is expected to announce another outsized interest rate hike of 75 basis points.

A similar upward trajectory is likely for the 10-year Treasury yield, according to Fairlead Strategies founder Katie Stockton. In a Monday note, Stockton said a decisive breakout above 3.50% for the 10-year US Treasury yield suggests a surge to 4% is imminent. 

“The targeted resistance from the breakout is ~4.00%. The DeMARK Indicators continue to support consolidation, but the counter-trend signals would be stopped out on an opening print above 3.56%,” Stockton said. 

That’s bad news for the stock market because as interest rates rise, fixed income securities start to be seen as an attractive alternative for investors.

Short-term yields are expected to hit 4% before year-end, which offers a relatively high return given the low amount of risk being assumed. That’s especially true during a period of high geopolitical and economic uncertainty, considering the Russia-Ukraine war and ongoing worries about a recession.

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