Rising Treasury Yields Finally Quelled Ahead of Fed Decision

By | April 27, 2016

Fed MeetingToday has finally seen the end of one-month highs on 10-year treasury yields. Anticipation for news from today’s FOMC meeting has put an end to the steady rise in yields seen throughout the month of April. Because mortgage rates typically track 10-year treasury yields, this is important news for the mortgage world, as evidenced by mortgage rates tracking at their highest levels in a month.

While there are several factors at play, we can most strongly attribute these changes to equities, the oil market, and the fed. Strength in oil and equities has led investors to sell off assets perceived as safe (bonds) in favor of potentially higher reward riskier investments. The result has been the yield on the benchmark 10-year Treasury note reaching its highest levels since March.

Additionally, confidence in and perception of the Fed has had a noticeable impact on the Treasury yields. As one investor described the effect, when the market thinks the Fed is dead, yields go up. To keep things in perspective, at this time last year, the 10-year Treasury note was tracking around 2.16, which is considerably higher than the high of 1.93 that markets saw yesterday.

Although the Treasury yield dipped today in anticipation of the FOMC meeting, we could see the yield continue on its upward trend, as the Fed predictably did not increase rates at today’s meeting. While the Fed made clear in its announcement following today’s meeting that a rate hike in June will be dependent upon economic data, the general consensus is that a June rate hike will not occur. The dovish tone of their announcement will likely have the market acting in a manner of business as usual in the weeks to come.

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