AI Summary
5 min readIn late September, the 10-year Treasury yield hit 5% for the first time since 2007, a level that feels both historically notable and, as one strategist put it, "not that high" compared to the double-digit mortgage rates of the 1980s. But context matters: the U.S. has a 30-year fixed-rate mortgage system, and most homeowners locked in sub-3% rates during the pandemic. That means the pass-through of higher rates to the real economy is weaker than in past cycles, and the Fed is now in a position where it has to keep hiking until something breaks — likely in risk assets.
What drove the 10-year yield to 5%
Megan Swiber, U.S. rate strategist at Bank of America, explained that the move to 5% is not a single shock but the culmination of several years of volatility. Coming out of the pandemic, inflation forced the Fed to hike aggressively, and the market had to incorporate a new reality: the Fed was no longer buying bonds through quantitative easing, and it was no longer signaling low rates for the foreseeable future. The 10-year yield reflects two main components: expectations for where the Fed will set short-term rates over the next decade, and a "term premium" — the extra compensation investors demand to hold longer-term bonds.
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What you'll learn
- 1 (00:00) **Introduction & Episode Setup** - Hosts Miriam Gottfried and Sam Goldfarb introduce the topic of the 10-year Treasury yield hitting 5% and preview the interview with Megan Swaiber of Bank of America.
- 2 (02:18) **How We Got to 5%: The Big Picture** - Megan Swaiber traces the journey from post-GFC low yields to the current 5% level, emphasizing the role of inflation and Fed policy.
- 3 (04:08) **Is 5% Really That High? A Historical Perspective** - Miriam questions whether 5% is extreme, given memories of 17% mortgage rates in the 1980s, but Megan explains why it feels different today.
- 4 (05:55) **What Makes a Treasury Yield? The Two Components** - Megan breaks down the 10-year yield into interest rate expectations and term premium.
- 5 (07:31) **The Role of Demand: Why Treasuries Are Losing Their Luster** - Megan and Sam discuss how the traditional safe-haven role of Treasuries has weakened, pushing yields higher.
- 6 (09:55) **Oil, Geopolitics, and the War in Iran** - The panel examines how the war in Iran and rising oil prices contribute to inflation and yield pressure.
- 7 (11:16) **Strong Economic Data: The Positive Side of Rising Yields** - Megan points out that rising yields aren’t entirely negative; they reflect a robust economy.
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Show Notes
This week, we’re bringing you an episode of WSJ’s Take On the Week. Host Miriam Gottfried is joined by guest co-host and WSJ markets reporter Sam Goldfarb to break down the unprecedented surge in the 10-year Treasury yield. Meghan Swiber, U.S. rates strategist at Bank of America, joins the show to discuss what influences these yields, and how a 5% yield affects everyday borrowing costs including mortgage rates, which are again topping 7%.
Swiber unpacks the Treasury Department's surprising buybacks, and how this strategy compares to the actions the Federal Reserve took to mitigate the effects of the last financial crisis. Plus, how is the market reacting to the Fed, which is trying to battle inflation by hiking rates?
Have an idea for a future guest or episode? How can we better help you take on the week? We’d love to hear from you. Email the show at [email protected].
To watch the video version of this episode, visit our WSJ Podcasts YouTube channel or the video page of WSJ.com
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