10-Year Treasury Yield Surges Over 100 Basis Points Despite Federal Reserve Rate Cuts

The U.S. 10-year Treasury yield has experienced a significant increase, rising over 100 basis points from its September lows, even as the Federal Reserve has implemented cuts to its target policy rate. This counter-intuitive market movement has drawn attention from financial observers, with one social media user, Andrew Jeffery, noting, "> Real estate bros, with the 10yr up after a rate cut, even though the same thing happened last time." This phenomenon signals shifting investor expectations regarding economic growth and future monetary policy.

Typically, a Federal Reserve rate cut is expected to lead to lower yields across the bond market, including longer-term Treasuries. However, strong economic data, including robust growth and declining unemployment, coupled with persistent inflation expectations, have led market participants to anticipate fewer future rate cuts than initially projected. This robust economic outlook reduces demand for safe-haven government bonds, pushing their prices down and yields up.

Historical data indicates that while unusual, this divergence is not unprecedented. JPMorgan analysis reveals that in previous seven cutting cycles since the 1980s, the 10-year Treasury yield was lower 100% of the time 100 days after the first rate cut. However, 2024 stood out as an outlier where the yield did not follow this typical downward trend, a pattern that appears to be repeating in the current cycle.

The behavior of the 10-year Treasury yield is particularly significant for the real estate sector, as it serves as a key benchmark for mortgage rates. When the 10-year yield rises, borrowing costs for consumers, including mortgage rates, typically increase as well. Lenders add a "spread" to this yield to determine mortgage rates, meaning an upward movement in the Treasury yield directly translates to higher costs for homebuyers.

Further contributing to the upward pressure on yields are concerns regarding the U.S. government's deficit and the increasing supply of Treasury bonds. When the supply of Treasuries increases without a corresponding rise in demand, bond prices fall, leading to higher yields. This, combined with investor sentiment that questions the long-term risk-free status of Treasury securities, can compel investors to demand additional yield.