Episode summary
Making Sense of Sky-High Treasury Yields | WSJ’s Take On the Week
The Journal
· · 36 min · Hosts: Telis Demos, Miriam Gottfried · Guests: Sam Goldfarb, Meghan Swiber
Summary
The episode argues that the surge in the 10-year Treasury yield to 5% is being driven mainly by shifting expectations for Fed policy, sticky inflation, and a higher term premium rather than by one single catalyst. The guest, Meghan Swiber of Bank of America, says the move reflects the market adjusting to a Fed that is still focused on inflation after years of ultra-low rates, quantitative easing, and pandemic-era distortions.
The discussion also links higher long-term yields to everyday borrowing costs. The host and Sam Goldfarb note that 5% Treasury yields matter for mortgage rates, corporate borrowing, and the valuation of risk assets, even if many households are insulated by fixed-rate mortgages. Swiber says the economy has remained strong enough that the Fed has not yet seen enough cooling to stop hiking, which keeps pressure on the front end of the curve.
A second major theme is Treasury market supply and demand. Swiber explains that Treasury buybacks, bill issuance, and a lack of strong end-user demand for longer-dated bonds have not been enough to pull yields lower. Her bottom line is that investors should think more carefully about duration risk and favor shorter Treasuries and bills unless they are specifically positioning for a major growth shock or crisis.
Key takeaways
- Swiber says the 10-year yield near 5% mainly reflects higher Fed rate expectations plus a larger term premium, not just one-off headlines.
- The guest argues that sticky inflation, including oil-driven pressures, is keeping the Fed on a tightening path and supporting higher front-end yields.
- She says Treasury buybacks have not been enough to offset weak demand for long-duration bonds or push long yields lower.
- Swiber says fixed-rate mortgages blunt the immediate impact on many households, but higher rates still hit marginal homebuyers, construction, and capital spending.
- For investors, she prefers bills and the 2-year to 5-year Treasury sector over 10-year to 30-year bonds unless they are betting on a major growth shock.
- She says a meaningful decline in long rates likely requires either a global crisis or a severe US growth slowdown.
Notable quotes
“You need to be looking at this from a longerrun approach. Be more so positioning for risk that we end up in another global financial crisis”
“people are demanding more compensation given all of this uncertainty, whether it be geopolitical, whether it be what the Fed is going to do at the next meeting”
How the episode opens
You need to be looking at this from a longerrun approach. Be more so positioning for risk that we end up in another global financial crisis or another pandemic when rates have to fall very meaningfully. And without that happening, without there being a very massive growth hit in the US, it's hard to really have confidence that those rates are coming down and will actually generate positive returns.
Hey everyone, it's Miriam. Telus is out today, but I have a special guest joining me as co-host. I have my colleague Sam Goldfarb, who's a markets reporter and covers US Treasury markets.
And it's actually no accident that I invited Sam here to join me today. He is here because we are talking about the thing that's been the center of attention, the Treasury market, and the fact that the 10year yield hit 5%. Sam, welcome to the show.
Thanks for having me. So, you may not think that the 10-year yield affects you that much. Um, but you probably own uh 10ear treasuries through a bond fund or a mutual fund.
You might own them directly. And if you are thinking about getting a mortgage, the tenure is actually the thing that determines what mortgage rates are or the primary factor that determines what mortgage rates are. and we wanted to find out how we got to 5%.
Um, and where yields could go from here. So to talk about that, we have Megan Swiber. She is US rate strategist at Bank of America.
And in that role, she helps investors think basically about where yields could go from here and how to trade around that. Um, Megan was a previous guest on Take on the Week and we enjoyed that conversation so much that we decided to have her back.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- treasury yields
- mortgage rates
- term premium
- federal reserve
- bond buybacks
Companies and tickers mentioned
- BAC
- Bank of America
Watch the episode
Watch “Making Sense of Sky-High Treasury Yields | WSJ’s Take On the Week” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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