NEW YORK/WASHINGTON, May 24 (Reuters) - Rising yields in the U.S. Treasury market are causing concern among officials in Washington, particularly regarding their impact on borrowing costs and inflation. A White House official indicated that there is anxiety about gasoline prices and the direction of the bond market, which could affect economic policy ahead of the midterm elections in November.
Greg Faranello, head of U.S. rates strategy at AmeriVet Securities, noted that rising yields could spill over into mortgage rates and the housing market. President Trump mentioned progress in negotiations with Iran, but emphasized there is no rush for a deal, which has dampened hopes for an immediate resolution.
Economic strategist Shawn Snyder suggested that the administration might consider calming rhetoric regarding Iran to address rising yields. Recently, U.S. Treasury yields have surpassed 4.5% on the benchmark 10-year note, with a notable increase of over 50 basis points since the start of the U.S.-Israeli conflict with Iran.
Federal Reserve officials are contemplating raising interest rates to combat inflation, contrary to Trump's calls for increased spending. Rising Treasury yields directly influence borrowing costs across the economy, affecting mortgages, credit cards, and business loans.
U.S. Treasury Secretary Scott Bessent and the White House have indicated that they believe the current elevated yields will be temporary. However, a sustained rise in borrowing costs could impact housing demand and consumer spending, potentially leading to a recession, especially as midterm elections approach.
Market participants have warned that Washington's ability to respond to rising yields may be limited, particularly if they are driven by strong economic growth and persistent inflation rather than credit concerns. Sam Lynton-Brown from BNP Paribas noted that the current rise in yields is primarily due to economic factors rather than fears over government borrowing, and that markets have so far managed to absorb higher rates without significant stress.