U.S. Treasury bond and note yields this week pushed to their highest levels since 2007. The 2-year note yield rose to 5.2%, while the 10-year note yield was fetching 4.96% as of this writing. The U.S. Treasury yield curve remains inverted (shorter-term maturities with a higher yield than longer-term maturities), which history suggests means impending U.S. economic recession. However, the U.S. economy remains resilient, as seen by this week’s retail sales report for September that handily beat market expectations. Rising Treasury yields are helping the Federal Reserve in its battle to tame inflation. Higher bond yields generally mean rising interest rates, overall. This week the average 30-year U.S. home mortgage rate moved to 8%. The march higher in bond yields is not only raising the cost of home borrowing but also the cost of business borrowing. While higher bond yields may allow the Federal Reserve to exit its monetary-policy-tightening cycle sooner, they also suggest reduced consumer and commercial demand for products, including commodities. That’s a potentially bearish scenario for the raw commodity sector, in the coming months. However, as U.S. economic data has shown in recent months, consumers and businesses are resilient and have so far proven wrong those who have predicted an impending economic recession. Also, the global economy is showing some better growth numbers, while inflation data has tamed a bit. The takeaway is that U.S. Treasury yields are trending higher, with no early technical or fundamental clues to suggest those trends will peter out or reverse. Higher U.S. Treasury yields extrapolate into a stronger U.S. dollar on the foreign exchange market, as well as pose a serious challenge to the competing asset class of equities. In other words, rising bond yields may make stock markets struggle for price advances in the coming months. Stay tuned! Jim Wyckoff