The bond market is flashing red.
asserted
market → flash → red
The yield on the 30-year Treasury note reached 5.44% on Wednesday, its highest level since 2004, before slipping slightly on Thursday morning.
asserted
yield → reach → morning
The 10-year Treasury, which influences mortgage rates, briefly neared 5.15% on Thursday morning, a level it last reached in 2001.
asserted
it → influence → 2001
Yields
amid concerns about inflation and growing U.S. debt.
asserted
Yields → amid → inflation
They jumped further on Wednesday after stronger-than-expected economic data led investors to price in additional interest-rate hikes as the Federal Reserve battles inflation.
asserted
Reserve → jump → inflation
Several members of the central bank's Federal Open Market Committee (FOMC), which sets rates, also signaled this week that they favor further increases.
asserted
they → set → increases
Wall Street analysts said investors are increasingly concerned about a protracted conflict in the Middle East, with the U.S. and Iran exchanging fresh threats at this week's United Nations General Assembly in New York.
asserted
U.S. → say → York
Prolonged tensions could keep oil prices elevated, stoking inflation and increasing pressure on the Fed to raise its benchmark interest rate, economists said.
uncertain
economists → keep → rate
On top of that, weak demand for a 5-year Treasury note auction on Wednesday forced the U.S. government to dangle higher yields to attract buyers.
asserted
demand → force → buyers
Bond yields and prices move in opposite directions, with rising yields signaling that investors are seeking higher returns as investments grow increasingly risky.
asserted
investments → move → returns
"When the world's largest borrower has to raise its price to find buyers, you MUST pay attention," said Mark Malek, the chief investment officer at Siebert Financial, in an email.
asserted
Malek → have → email
"Yields don't only rise because the Fed says so.
asserted
Fed → rise → ?
They rise when lenders demand more to lend — and every mortgage, corporate bond and small-business loan in America is ultimately priced off that same benchmark."
asserted
mortgage → rise → benchmark
He added, "Growth, oil, a hawkish Fed and reluctant buyers.
asserted
He → add → Growth
Investors are bracing for higher inflation after diesel prices in the U.S. hit a record high of $6.53 a gallon on Tuesday.
asserted
prices → brace → Tuesday
Diesel is widely used in agriculture, trucking and construction, and economists warn that surging prices could seep into other parts of the economy, such as food and retail goods that must be shipped to stores across the country.
uncertain
that → use → country
The Federal Reserve earlier this month
for the first time since 2023, as Chairman Kevin Warsh underlined the central bank's goal of nudging inflation closer to its 2% annual target.
asserted
Warsh → underline → target
Inflation, which had been approaching 2% at the start of the year, reignited after the Iran war drove up global oil prices.
asserted
war → approach → prices
The Consumer Price Index stood at in August.
asserted
Index → stand → August
Returning consumer prices to the Fed's preferred 2% pace could take years, with FOMC members earlier this month predicting that inflation may not dip to that level until 2029.
uncertain
inflation → return → 2029
Inflation could also continue to rise by year-end, reaching 3.7% in the fourth quarter, according to their median projections.
uncertain
Inflation → continue → projections
The jump in bond yields this week "is driven by inflation and the belief that it's going to take a lot more Fed rate hikes to curb it," Heather Long, chief economist at Navy Federal Credit Union, said in an email.
asserted
Long → drive → email
Traders of interest rate futures see a 70% chance of a quarter-point rate hike at the Fed's October meeting, followed by a 56% likelihood of another increase at its December meeting, according to CME FedWatch.
uncertain
Traders → see → FedWatch
(The FOMC doesn't have a rate-setting meeting in November.)
asserted
FOMC → have → November
Those two additional hikes would bring the Fed's benchmark to between 4.25% and 4.5%, or about 0.75 percentage points higher than where it stood at the start of September.
asserted
it → bring → September
Some analysts also expect the Fed to further lift rates in 2027.
asserted
Fed → expect → 2027
Economy heating up
asserted
Economy → heat → ?
The bond market got a major jolt on Wednesday after purchasing managers' data showed that U.S. business activity is growing at its fastest pace in years, while costs for corporate America are also rising quickly.
asserted
costs → get → America
On Thursday, a government report showed that fewer U.S. workers applied for unemployment benefits last week, further strengthening expectations for the economy.
asserted
workers → show → economy
A hotter economy could add to inflationary pressures, while a solid job market gives the Fed more leeway to raise borrowing costs.
uncertain
market → add → costs
Typically, the Fed turns to interest rate hikes to temper inflation and cool the economy.
asserted
Fed → turn → economy
That's because higher borrowing costs tend to reduce consumer spending and business investment, slowing economic growth.
asserted
costs → tend → growth
When unemployment is high, however, the Fed may cut interest rates to drive spending and make it cheaper for businesses to borrow and hire workers.
uncertain
businesses → cut → workers
The recent data showing a strengthening economy, combined with steady job growth, could open the door to more rate hikes, experts said.
uncertain
experts → show → hikes
"The biggest market risk right now may not be weak growth but excessive heat," Malek noted.
uncertain
Malek → note → ?
"Strong economic activity is welcome, but it makes the Fed's inflation problem considerably harder.
asserted
problem → make → ?
What does it mean for your money?
Higher borrowing costs make it more expensive to buy a home or car, use credit cards or tap other forms of debt.
asserted
it → mean → debt
"On Main Street, this is yet another part of the affordability crunch," Long said.
asserted
Long → say → crunch
Savers may modestly benefit if the Fed further boosts rates.
uncertain
Fed → benefit → rates
Banks typically increase rates on savings accounts and CDs when the Fed raises its benchmark rate, though the increases vary by bank.
asserted
increases → increase → bank
…and 5 more, not listed.
The Aporia
