The yield on the 10-year Treasury has reached 5% for the first time since 2007.
Treasury yields have been climbing rapidly, with the 10-year yield rallying from less than 3.50% during the spring and from just 0.50% early in the pandemic. Monday morning,was at 4.96% after hitting 5.02% earlier. The jump means the U.S. government must pay more to borrow money from investors to cover its spending.
The low rates led to rising prices for houses, stocks and other investments, but they may also have encouraged too much risk-taking and spurred investment bubbles.. To do that, they raise interest rates and hope the higher costs to borrow will starve inflation of its fuel by bringing down spending. . They include the U.S. government's big deficits, which require more federal borrowing, and the Fed's ongoing efforts to reduce its trove of bond investments built earlier to keep yields low.
Even for companies with the best credit ratings, the interest rates they borrow at are set by adding some extra on top of whatever the U.S. government is paying for its Treasurys. Borrowers with worse credit ratings have to pay more extra than those seen as good bets to repay their debts. When a super-safe Treasury is paying much more in interest, investors feel less need to pay high prices for a Big Tech stocks, cryptocurrency or other investment that carries more risk. It's a big reason the S&P 500 has seen its gain for the year so far tumble from 19.5% at the end of July to 10% as of Friday.
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