Finance
Five Percent on the 10 Year: the Bond Market Just Repriced Money for the First Time Since 2007
The yield on the 10 year Treasury note touched 5.04 percent on Tuesday, its highest level since July 2007, settling near 5.01 percent in morning trading. The 30 year yield reached 5.37 percent, approaching its June 2007 peak of just under 5.40 percent. For the first time in 19 years, the bond market is pricing long term money above five percent, and the repricing is rippling through every corner of finance.
The Federal Reserve's policy committee begins a two day meeting today, with its decision due Wednesday afternoon. Markets expect the central bank to raise its benchmark rate for the first time in three years. Chair Kevin Warsh, who took the helm in May, has made fighting inflation his top priority, and recent data has confirmed prices running well above target. Warsh will hold a press conference after the announcement, though he has made clear the Fed should keep its own counsel on future moves.
The drivers are straightforward: persistent inflation worries and rising government debt have driven a weeks long selloff in bonds. Oil added to the pressure, with West Texas Intermediate crude up 1 percent to 102 dollars a barrel. Gold eased to 4,325 dollars an ounce, and bitcoin traded near 76,800 dollars as investors weighed tighter money against the afternoon's crypto legislation vote.
There is a bright side the headlines skip. Five percent yields mean savers finally earn a real return, pension funds can fund future obligations with less strain, and borrowers face honest prices for capital instead of the subsidized rates of the easy money era. Discipline in credit markets is a feature, and after years of distortion, the price of money is telling the truth again.
For the sound money crowd, this is the macro backdrop bitcoin was built for. When government debt gets expensive to finance and fiat savings still lose purchasing power to inflation, the appeal of a fixed supply asset grows on its own merits, free of any central bank. Watch Wednesday's decision and Warsh's press conference for the path ahead, but the bigger signal already flashed: the era of free money is over, and honest pricing is back. Position accordingly.
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