ref :- General round-up
Further discussion of US Treasury yields may well make us sound like a broken record -- yeah, we know .... what's new ? -- but on this occasion we don't feel the need to apologize too much. It might be a little myopic to say that the 10yr yield pushing up through the 3.00% barrier is the only game in town, but it is THE topic in focus everywhere you turn .... even if opinions vary as to just how significant this particular "significant moment" will prove to be.
The 3.00% was actually hit yesterday but the rate subsequently backed off a touch. This morning, a new high of 3.03% has been reached (last at 3.02%), prompting commentators to trumpet once again why they think the fundamental reasons behind climbing bond yields (and falling bond prices) make sense. You've heard them all quite a bit of late but it doesn't make the rationale any less valid : sharp rises in commodity prices, particularly oil and precious metals, that stoke up concerns over inflation , and the heavy issuance of Treasury debt , especially this week, would be highest on the list of factors behind this latest move.
We were wondering yesterday whether a break of 3.00%, being a nice, easy round number and a psychologically noteworthy level rather than a "technically" crucial barrier, would prove to be a launch pad for significantly higher yields to come. Some of the highest profile bond market gurus have been saying for some time that moving through 3.00% means 3.50%. That's a bold call and not even its proponents would argue that such a move could happen immediately, but since the administration's tax-cutting, high-spending, deficit-swelling plans were revealed, it seems a lot more viable than it once did.
As it happens, any musings over whether it was the break of 3.00% that was key to such a move (should it happen) may become more confused at any minute should the rate push much further.
3.05% (or 3.0516% , to be absolutely accurate) is the high reached at the start of Jan 2014, the absolute peak of the spike in yields that really began in May 2013 when then-Fed Chair Ben Benanke initiated the infamous "Taper Tantrum" by suggesting that the Fed might soon start to wind down the stimulus it was putting into the economy through Quantitative Easing. That makes it a highly important, and very simple, technical level to watch .... and who knows ? By the time many of you read this it may well have already fallen. When and if it does, that means 10yr yields will be at their highest for seven years, and that's bound to grab even more attention ..... whether you look at things technically, psychologically, or any other way.
By historical standards, yields of 3.5% (say) are hardly exorbitant so one might wonder what all the fuss is about. Well, on the domestic front it does load extra cost of borrowing onto many companies and households, and thus threatens rates of growth in a cycle that many would view as nearing its end. Outside the US, the effects could be even more severe, especially in emerging markets that in places have gorged themselves on debt funded in dollars. And from a market point of view, investors switching from equities to the rising yields available in bond markets may just signal another reason to look for the end in the long and spectacular bull run in stock markets that are already looking shakier than we've seen for some time.
Then again , maybe they're just numbers ......
Just in case, tomorrow sees the latest policy decision by the European Central Bank followed by the briefing from its president Mario Draghi. There is absolutely no chance of any changes in rates being announced, and once again interest lies in what Mr Draghi has to say. Much has been made about softer data, particularly on inflation, in the Eurozone recently. So the upbeat and confident tone of comments from ECB officials of the last few days has been a slight surprise, and indeed a welcome change from the guarded norm. Nevertheless, and particularly with regard to the latest data, any change from the "cautious" approach favoured by the ECB seems pretty inconceivable to us ..... it's where the ECB is happiest and right now, it would be hard to argue with them.