September 24, 2019
As shown in the LPL Chart of the Day, the 10-year Treasury yield jumped 34 basis points (0.34%) in the week ending September 13, then gave back half that gain in a 17 basis point (0.17%) slide last week. The benchmark yield hasn’t moved at least 15 basis points (0.15%) in two consecutive weeks since November 2016.
The 10-year yield’s rapid ascent earlier this month was sparked by optimistic trade headlines and improving economic data, especially regarding inflation. On September 13, the 10-year yield jumped 12 basis points (0.12%) amid news that U.S. retail sales topped expectations and that China would exempt some agricultural products from tariffs. Treasuries’ swift selloff also caught investors off guard, spurring more selling and even higher yields (yields go up when bond prices fall). Then gravity kicked in, and the 10-year yield slid for five consecutive days as trade headlines turned negative and global worries took over.
“The recent rally in yields was historically strong, so we expected fixed income markets to recalibrate,” said LPL Financial Chief Investment Strategist John Lynch. “Even if we see progress in trade talks, the buying pressure in Treasuries could persist as the global economy recovers from trade disruptions and other central banks eye drastic monetary policy easing.”
The combination of easier policy, solid economic fundamentals, and the widening budget deficit suggests to us that yields could move higher. Until we get trade clarity, though, we look for the 10-year yield to hover around current levels.
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