Treasury Yield Spike

Treasury Yields Surge to Multi-Decade Highs Due to Institutional Selling and Rising Deficits

The interest rate on the 10-year Treasury note hit levels last seen in 2002, before easing back to 5.24%, and 30-year bonds also hit multi-decade highs. The rise in rates is due to technical reasons such as war in Iran and rising deficits, but also a technical matter of supply and demand. Institutional investors that typically buy government debt, particularly hedge funds and mortgage REITs, have been selling. This means less demand for the bonds, leading to a fall in bond prices, and when prices fall, the interest rates those bonds pay to investors rise. The average rate on mortgage bonds also surged to 7.28%, up from 7.03%. Some market observers suspect hedge funds may be unwinding what's known as the "basis trade" to profit on the difference between the price of an actual Treasury bond and a future on that bond.

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