Massive Treasury issuance to pay for massive pandemic spending has driven yields higher.
It's the law of supply and demand: Increase the supply of US Treasury debt and the price goes down.
Previously issued securities paying lower interest rates drop in price because they are much more plentiful in comparison with the new issues paying higher rates which investors demand.
Who wants 'em?
Banks are estimated to be stuck with these dogs in quantities approaching what the Fed has let roll off, which is what they also must do. The collateral backing banks, insurance companies, pension funds, et cetera et cetera et cetera, suffers.
The Federal Reserve Bank's role as a big buyer in the bond market has been curtailed since 2Q2022, removing its big price support role. As of 3Q2023 the balance sheet is down $768 billion as securities mature. That's about $51 billion rolling off per month, and no net buying to replace it.
The Fed has also raised the Federal Funds Rate to an average of 5.33 to combat inflation.
So yields have risen for such reasons to these records for this cycle to date, but it's all predicated on the US Treasury having to dilute the supply:
1MO 6.02 5/26/23 (debt ceiling disagreement)
3MO 5.63 10/6/23
6MO 5.61 8/25/23
1Y 5.49 9/27/23
2Y 5.19 10/17/23
3Y 5.03 10/18/23
5Y 4.95 10/19/23
7Y 5.00 10/19/23
10Y 4.98 10/19/23
20Y 5.30 10/19/23
30Y 5.11 10/19/23.
In the aggregate as of Oct 20 yields are up a net 22% year over year to an average of 5.25692 from 4.30846 when all the wizards of smart said they couldn't possibly go any higher without breaking something.
They're still saying that.
