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Mortgage rates climb as the 10-year Treasury yield hits 2.76%

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Yahoo Finance Live’s Brian Cheung discusses mortgage rates and inflation as the 10-year Treasury yield hits 2.76%.

Video Transcript

BRIAN SOZZI: And number two on our list is yield creep. The 10-year Treasury yield has broken through 2.7% this morning. Meanwhile, the yield curve inversion remains in focus among traders. All of these bond market moves has placed pressures throughout various asset markets. Let's tee this up here. For instance, tech stocks, which don't often like higher yields, are under pressure this morning, notably a lot of those big FAANG stocks that you all love to trade out there.

Also, 30-year mortgage rates are also now at 5%, raising the cost of home ownership for many people in this country. Here with more on this yield creep is Yahoo Finance's Brian Cheung. Brian, well, if the Fed wanted to embark on its rate hiking cycle, as it has, it has to expect some of these moves in yields, like we continue to see here.

BRIAN CHEUNG: Yeah, and Brian, you already laid out kind of the impact that the Fed's signaling has had on longer term interest rates. You're already seeing mortgage rates rise, and that's likely the more powerful impact of the Federal Reserve's interest rate hikes than just the 25 basis points on the short-term rates that the Fed began doing in its March meeting. Of course, all eyes on the 10-year yield. Just this morning, as we've seen, a pretty interesting rise in the 10-year yield, up to about 2.75%.

Keep in mind, that's about 100 basis points higher than where it was on March 1. And what's interesting about the 10-year yield is that there's likely signs that it could continue to go further as we get more hawkish commentary from the Federal Reserve. The Cleveland Fed President Loretta Mester speaking to CBS just yesterday in the morning, saying that she's optimistic that the Fed can further raise interest rates. But we're showing you right now the spread between the two-year and the 10-year treasuries.

Again, remember that this so-called yield curve inversion is usually a recession indicator with a lead time of as much as two years. It's no longer in the inverted territory. It's actually bounced back quite a lot into positive territory. So maybe the brief inversion, as opposed to a prolonged inversion, shows that, at least for right now, bond markets are shaking off concerns about a recession coming soon.

But of course, all eyes on how the Federal Reserve is going to respond to the immediate issue of inflation, the update of which we won't get until tomorrow morning for that consumer price index. So get ready and probably buckle in for a little bit more volatility ahead and then after tomorrow's 8:30 AM release.

EMILY MCCORMICK: Well, and Brian, in addition to the release we'll be getting tomorrow, we're also going to be getting some more Fed speak coming out from a number of members of the FOMC. And I'm wondering, based on what we've heard last week, based on what we heard just yesterday from Mester, as you pointed out, last week from Brainard and several others, what do you think investors should be expecting? How do you expect Treasury yields may respond to the slate of speakers we have this week, based on where they land on that dove-hawk scale?

BRIAN CHEUNG: Yeah, for what it's worth, all the members of the Fed now are hawks. And that's because the Federal Reserve, regardless of whether or not you're Minneapolis Fed president Neel Kashkari or a Fed Governor Lael Brainard, who has historically preferred a slower normalization process, everyone's on the same page right now in terms of wanting to raise interest rates.

Now, some people might be a little bit more aggressive than others, like St. Louis Fed President James Bullard, who advocated and dissented in that March meeting, preferred a larger bump in that particular meeting. But everyone directionally is in the same place. It just is with regards to what speed. Now, of course, with all eyes on that double bump, what I'm calling a king-sized bump in that meeting in May, which would be 50 basis points instead of the standard 25 basis points, that's very much going to be in focus.

As far as people to watch going forward, tomorrow morning, we're going to hear from Fed Governor Lael Brainard actually in the afternoon around noon, so obviously, all eyes are going to be on that commentary with regards to how the possible Fed vice chair, again, her nomination for that second spot at the Federal Reserve still pending in the Senate, but likely to go through, very much going to be a big part of the narrative with regards to the Fed's reaction function, at least after the inflation data tomorrow.

BRIAN SOZZI: I like that, Brian, king size. I was going to go whopper, but I like your-- I like your king size.

BRIAN CHEUNG: King size, super size, or a trenta, or--

BRIAN SOZZI: I like that. I like either. Real quick, though, before we let you go off and do your regular job, do you think the Fed members that spoke last week, essentially, they have spooked the market?

BRIAN CHEUNG: Well, I think when it comes to the bond repricing, it's not necessarily spooking, right? Because the reason why yields go up is because the bond price is going down. So there's a lot of selling of these so-called risk-free assets, but it's not kind of coinciding with what you usually tend to see in regular risk-off behavior, which is people rotating out of safe assets, like fixed income, and then into stocks because these commensurate increases in yields has also come alongside a lot of red days in equities. And that makes sense when you take a look at the tech stocks, which are a little bit spooked by the idea of higher borrowing costs.

So when you say spooked, it really depends on what industry you're looking at. From the tech perspective, that could certainly be the case. But again, we're just in the beginning of this hiking cycle, so it seems to be very much the case that investors are likely to try to shake off exactly what strategy they want in the months, maybe even years, to come as the Fed continues to hike rates.