Are Yields Near a Bottom?

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Economic Blog

The 10-year U.S. Treasury yield moved to within .05% of its recent low on Friday, January 31, approaching the 1.47% mark set back in August 2019. Prospects of stabilizing global growth and progress on trade encouraged yields to start pressing higher over the last four months of 2019; however, fears of the potential economic damage from efforts to contain the spread of the coronavirus steered investors back to the relative safety of Treasuries.

While recent declines may make it appear yields are destined to push lower, large swings in Treasury yields, both higher and lower, have been normal. As shown in LPL Chart of the Day, since the early days of the 2007–2008 financial crisis, the 10-year Treasury yield has made 15 moves of at least 0.75%, averaging a reversal about every 300 days or so, or a little less than once a year.

If we don’t break through the recent low of 1.47%, then the last move lower would be about average: a decline of 1.77% over 293 days, which is close to the average decline of 1.63% over 297 days. While we have had larger moves down, historically, a meaningful move higher would be entirely normal.

“The 10-year Treasury yield looks low to us relative to U.S. economic fundamentals and firming global growth,” said LPL Research Chief Investment Strategist John Lynch. “While we remain mindful of the risk of increased market volatility, which would probably drive yields lower, we maintain our 2020 forecast range of 2–2.25%.”

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