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If you are trying to figure out whether now is the time to buy bonds, watch the White House more than the Federal Reserve.
The benchmark 10-year Treasury yield has been rising toward 5%, Fed interest-rate cuts be damned. The central bank held its own rates steady Wednesday after trimming by a full percentage point since last fall.
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Long-term U.S. government-bond yields have been taking their cue less from the Fed than from President Trump. He took office last week promising to cut taxes, enact tariffs and deport immigrants. Many investors believe these policies will grow the federal deficit and stoke inflation, fueling the latest push toward higher yields.
The state of play
Right now, uncertainty is at an extreme. A measure of all the unknowable factors baked into Treasury yields beyond baseline rate expectations, called the term premium, has recently been at its highest level in years, according to some estimates.
The rise in yields has kept borrowing costs high for everything from mortgages to corporate debt. Higher rates tend to weigh on stocks, too. Meanwhile, the rise in yields has handed paper losses to many bond investors, because rising yields are the result of falling bond prices.
That might not matter if you are planning to buy and hold the bonds until they mature, collecting interest along the way and finally getting back your full principal. If you are buying Treasurys because their yield looks attractive now and you don’t have a longer-term plan, there are some factors you should consider:
Plenty of people disagree on what happens next. BlackRock Chief Executive Larry Fink said recently that 10-year Treasury yields could rise to as much as 5.5%. Morgan Stanley researchers say yields will fall to 3.55% by the end of the year.
The bull case
The 10-year Treasury note on Tuesday had a yield of 4.55%. This month it went as high as 4.8%. The Fed’s short-term rates are currently lower, at a range between 4.25% and 4.5%.
It stands to reason that long-term Treasury rates shouldn’t drift too far above short-term rates. The biggest influence on 10-year yields is typically what investors expect short-term rates to average over the next 10 years, and the Fed is still in a period of cutting rates, not raising them.