What’s Happening With the 10-Year Treasury?

An immediate lesson should have been more reminder that surfaced after the Federal Reserve cut the federal funds rate range by 50 basis points wnot all rates move in tandem.

One might expect a short end of the Treasuries, like the 3-month yield, to be sensitive to the federal funds rate, and it was. First in anticipation, falling from 5.19% at the start of September, sliding to 4.95% the day before the announced cut that everyone expected would happen, and then an 11-basis-point drop at the close of the 18th. And the secure overnight financing rate, or SOFR, went from 5.38% on September 17th to 4.82% on the 19th.

But the yield on the 10-year Treasury was different. September 3, 2024, started at 3.84%. The day before the announcement, it was 3.65%. After, it jumped to 3.70% and then ended Monday, the 23rd, at 3.75%.

Treasurys affect a lot of borrowing, the 10-year in CRE particularly. The industry would like to know where it was going. There are two types of predictions available. Multiple companies and other sources and publications provide the first type. It’s based on the buying and selling that regularly happens. One reason the 10-year yield is important as a baseline for lenders to set rates is the vehicle is transparent.

There have been multiple estimates of where the 10-year might go. CBRE anticipates that the 10-year Treasury yield will remain below 4% by the year’s end and settle in the mid-3% range throughout most of 2025. This outlook is more optimistic than Fitch Ratings’, which projects the figure ending 2026 at 3.50%, close to its current level of around 3.70%.

But these estimates are made of two parts. The first is a compilation of calculations made on 10-year trades. The curves offered by many sources are virtually the same, Carol Ng, managing director of hedge advisory firm Derivative Logic, told GlobeSt.com.

“It’s all the same mathematical model” using “bond math,” Ng says. “The curve is just what the market says. We are not really running this through a model that’s different from everyone else’s.” Where the forward curves of Derivative Logic, Chatham Financial, and other such firms diverge is pulling the data at different times.

Where the real differences come in is through opinion. Markets can be right, and they can be wrong. Back in the early part of 2024, many were betting on the first Fed rate reduction in March. One didn’t happen until September.

All the firms put macroeconomic overlays — labor markets, inflation, manufacturing activity, housing, imports/exports, inflation, unrealized bank losses, and more — atop the mathematical curve. Some might be wrong; others might ultimately be right.

However, Ng says that in the current climate, being right will be particularly difficult because of volatility.

“The 10-year shouldn’t be this volatile,” Ng explains. “That’s a reflection of the instability, not just in the US and world economy, but all the outlying factors. I think we’ll have a lot of outlier events that will come out of the woodwork. We have all these big things that are happening. If they burst, it will affect the market. But when they will burst, if they will burst, I don’t know.”