Surprise: Financial Conditions Tightening Into 2025

2025-01-14 14:46:00 ET

Summary

• The U.S. 10-year Treasury yield has risen more than a percentage point, touching 4.8% for the first time since October 2023 and April 2007 before that.
• Treasury investors are demanding more yield compensation in the face of incoming trade tariffs, rising debt levels, and galloping interest payments globally, and fair enough.
• Higher yields are better for savers but hard on debtors and are much less ‘stimulative’ to credit growth and stock markets than the zero-bound rates maintained for nine years, 2008-2015 and 2020-22.

While the U.S. Federal Reserve cut overnight rates by 125 basis points since November 2023 (below on the lower right), the U.S. 10-year Treasury yield has risen more than a percentage point, touching 4.8% for the first time since October 2023 (on the lower left) and April 2007 before that. Higher rates are the opposite of what financial markets had been expecting....

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