Rates Already Inching Higher
Regardless of whether today’s job report pushes the benchmark Treasury 30-year bond yield above 6%, interest rates in capital markets have already been acting as if such higher rates are part of the landscape.
Fixed home mortgage rates, for example, rose to the highest level in more than 1 1/2 years this week, to 7.41%, according to the weekly survey by Freddie Mac.
Despite the focus on benchmark bonds and the key “6% level,” yields of most Treasury bonds with maturities greater than 15 years have been over 6% for most of May. The only exception is the most recently auctioned 30-year bond itself.
The reasons for that “inversion” at the end of the yield curve are technical. One factor is that Wall Street firms use the benchmark bonds to hedge other investments, thus there is high demand for them. That keeps the yield lower than it might otherwise be, explained Tad Rivelle, who manages bond portfolios at Metropolitan West Asset Management in Los Angeles.
Investors who simply want to buy bonds for income would lock in higher yields by buying shorter maturities than 30 years. Treasuries that mature in 2019--now yielding 6.26%--are “arguably a better place to be for long yields,” Rivelle noted. (See Treasuries, C12.)
