10-Year Treasury Yields Pull Back from Highs: What Does It Mean?

TradingKey - On Wednesday, the 10-year U.S. Treasury yield dropped below 4.5% after the U.S. Treasury Department announced plans to maintain its current debt issuance levels for the coming quarters. This announcement dispelled market speculation that newly appointed Treasury Secretary Scott Bessent might increase long-term bond issuance to finance the deficit. 

Source: Bloomberg

In its quarterly refinancing statement, the Treasury confirmed that auction sizes would remain stable for “at least the next few quarters.”

What Does This Mean for the Stock Market?

The decline in the 10-year Treasury yield below 4.5% has eased concerns about a potential spike in borrowing costs that could ripple through other markets. Currently, the Federal Reserve’s federal funds rate target range stands at 4.25%-4.50%, aligning closely with yields across the Treasury curve.

There is a well-documented inverse relationship between Treasury yields and U.S. equities. When the 10-year yield exceeds 5%, the negative correlation between yields and stock performance becomes more pronounced, with higher yields typically weighing on equities. On Wednesday, the decline in Treasury yields supported U.S. equities, with all three major stock indices closing higher.

Source: X User The Daily Shot

Bessent and Trump’s Focus on US 10 Year Treasury Yields

Treasury Secretary Scott Bessent highlighted that the Trump administration’s primary focus is on reducing borrowing costs via the 10-year Treasury yield rather than the Federal Reserve’s benchmark short-term rate.

“He and I are focused on the 10-year Treasury,” Bessent said in an interview when asked about whether President Donald Trump wants lower interest rates. “He is not calling for the Fed to lower rates.”

After the Fed’s decision last week to hold its benchmark rate steady, Trump criticized the central bank on social media for “failing to address the problems they created,” which he attributed to surging prices. Bessent and Trump believe interest rates and the dollar will naturally stabilize if energy prices decline, tax cuts are extended, and deregulation efforts continue.

“The latest Trump administration angle is for rates to be pushed lower through downward pressure on the 10-year yield, through lower inflation and a lower fiscal deficit,” wrote strategists at ING Groep NV including Padhraic Garvey. “Achieve that and we’d agree. But achieve it first.