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Understanding the Surge in Treasury Yields

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Why are Treasury Yields on the Rise?

Despite rate cuts from the Fed, Treasury yields are climbing. Why is this happening?

After the Fed slashed rates by 50 basis points on September 18, typically bond yields fall. This is because lower interest rates reduce future returns on bonds, expected to be issued at lower rates.

Surprisingly, over the past three weeks, the 10-year Treasury yield surged by 10% post the rate cut. What’s behind this spike?

Chart of the 10-year Treasury yield increasing by 10% after the Fed rate cuts

Source: StockCharts.com

Renowned investor Louis Navellier highlighted three key drivers behind this trend: intense mortgage demand due to falling rates, positive economic indicators signaling U.S. improvement, and rising crude oil prices amidst Middle East conflict fears.

Navellier explained, “Economic growth paired with inflation upticks exert upward pressure on bond yields,” as we witnessed last week.

Rising crude oil prices could impact future inflation, but this week’s inflation reports are expected to remain favorable.

Comments from Richmond Federal Reserve President Barkin hinted at inflation concerns potentially impacting rate cut decisions, causing market jitters regarding Wall Street’s projections.

Meanwhile, China’s rollercoaster ride: Stimulus efforts led to a soaring Chinese stock market, particularly in Hong Kong, before a 10% drop post lackluster stimulus assurance.

Hong Kong stock index surging after Chinese stimulus

Source: StockCharts.com

The volatility highlights the impact of government interventions on financial markets, serving as a crucial lesson in economic stability. Investors should monitor these developments for insights into global economic trends and market movements.

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