U.S. Treasury yields hit 20-year high... Reflecting expectations of additional Fed hikes

(New York = Yonhap News) Correspondent Soo-jeong Lim = As the possibility of further interest rate hikes by the U.S. Federal Reserve (Fed) is highlighted, U.S. Treasury yields are soaring day after day, reaching the highest level in decades.

According to CNBC, a U.S. economic media outlet, on the 24th (local time), the interest rate on 30-year U.S. Treasury bonds rose to 5.501% after the close of trading in New York that day, hitting the highest level since 2004.

The 10-year U.S. Treasury yield, a benchmark for global long-term interest rates, also rose to 5.22%, the highest level since June 2007.

The two-year interest rate, which is sensitive to monetary policy, also rose to 4.94%.

Bond interest rates and bond prices move in opposite directions, so a rise in bond yields means a fall in prices.

The selling trend in the U.S. Treasury market continued for the second day following the previous day.

The previous day, the 10-year Treasury bond interest rate rose by the largest amount in a single day since April 7 last year due to the influence of US economic indicators that exceeded market expectations, Federal Reserve officials' hawkish remarks (favoring monetary tightening), and the rise in international oil prices.

“The bond market is entering unfamiliar territory as finances, economics, geopolitics, and inflationary pressures overlap at the same time,” said Mike Sanders, head of the fixed income division at Madison Investments. “The recent rise in interest rates cannot be explained simply by concerns about fiscal deficit.”

Expectations in the market are rapidly growing that the Federal Reserve will raise the base interest rate further by 0.25 percentage points on the 16th.

According to FedWatch of the Chicago Mercantile Exchange (CME), the interest rate futures market reflects a 70% possibility that the Federal Reserve will further raise the benchmark interest rate at the Federal Open Market Committee (FOMC) in October. This is a rapid increase from about 49% a week ago.

Following Federal Reserve Board Director Michael Barr's speech the day before that said "additional policy adjustments will likely be necessary" to lower inflation to the target level, New York Federal Reserve Bank President John Williams also said at an event in London on the same day that it is "reasonable" to expect one additional interest rate hike within the year.

The burden of rising long-term interest rates is already having an impact on the real thing.

The interest rate on 30-year fixed mortgage loans in the United States has recently surpassed 7%, showing the highest level since President Donald Trump began his second term.

This means that if you purchase a typical home and receive a 30-year mortgage loan at an interest rate close to 6% at the beginning of this year and at the current interest rate, the difference in total principal and interest repayment can reach tens of thousands of dollars, increasing the burden of living and housing costs.

The selling of government bonds is also spreading to bond markets in major countries.

Japan's 10-year government bond interest rate rose to around 3.1%, the highest level since August 1996, and Germany's 10-year government bond interest rate also reached 3.6%, the highest since 2009.