A recent selloff in government bonds has caused the yield on the 10-year Treasury note to reach its highest level in 16 years. However, experts suggest that investors should not feel compelled to make hasty purchases.
On Thursday, the 10-year yield reached 4.32% as investors considered the potential for inflation to exceed the Federal Reserve’s target rate of 2%. The minutes from the Federal Open Market Committee’s July meeting revealed that most committee members acknowledge the “significant upside risk to inflation.”
Despite rising interest rates, the economy has shown resilience, leading many investors to no longer anticipate a recession this year. Consequently, the Federal Reserve is not expected to decrease interest rates in the near future. George Ball, Chairman of Sanders Morris Harris, a financial services firm, believes that the economy can thrive even with higher interest rates, as the past 15 years of extremely low rates have been an anomaly.
Given the possibility of further decreases in longer-term bond prices and the inverse relationship between bond prices and yields, it is likely that yields will continue to rise.
Phillip Colmar, a global strategist at MRB Partners, suggests that investors can expect a better entry point into the market as yields increase. He sees more favorable opportunities in shorter-duration bonds, such as the two-year Treasury bond which currently yields around 5.0%.
For over a year, yields on shorter-dated debt have been higher than those on longer-dated securities, indicating an inverted yield curve that historically foretold an upcoming recession. However, despite this trend, an economic slowdown has yet to materialize, and the yield curve is now steepening with longer-dated yields rising and reducing the gap.
Rajeev Sharma, Managing Director of Fixed Income at Key Private Bank, believes that we are moving towards a normalizing yield curve that has not been seen for a while.
In conclusion, while the recent rise in 10-year Treasury note yield may be significant, experts advise investors to exercise caution and consider their options before making any hasty decisions.