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Federal Reserve · Fixed Income · Inflation · Treasury Yields
U.S. 10-year Treasury yields have climbed to a recent peak of 4.79% on January 14, 2025, despite Federal Reserve rate cuts, prompting T. Rowe Price's Asset Allocation Committee to hold underweight positions in long-term U.S. Treasuries and broader fixed income.
This upward trend, from 0.51% in August 2020, is driven by rising inflation expectations, which reached 2.40% as of January 21, 2025, and elevated real yields at 2.15%. Additionally, Federal Reserve expectations for the federal funds rate have increased to almost 4%, and the term premium, which compensates for rate risk, has risen to 0.49% by the end of 2024.
The article, authored by Timothy C. Murray, CFA, highlights that a 10-year Treasury yield above 5% is not historically unusual, citing sticky inflation, ballooning budget deficits, and political uncertainty as contributing factors. The correlation between U.S. bonds and equities also shifted from negative 0.72 in November 2024 to positive 0.39 by January 2025, indicating simultaneous price movements.
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Ten-year Treasury yields rose to their highest in eight months and Hargreaves Lansdown said that the bond market could potentially put pressure on Trump to end the Iran war.
