US 10-year yield falls below 2022 closing price level
The yield on the US 10-year Treasury note is currently trading at 3.844%. The stock fell by 4.0 basis points on the day. Today’s decline leaves the yield below its 2022 closing level of 3.886%. It has been trading above and below that level for the past five business days. I’m lowering my run today.
The direction of yields in 2023 was initially expected to reach their lowest level in early April, as the local banking crisis was expected to lead to an influx of funds into the relative safety of U.S. government bonds. Low yields bottomed out at 3.253%, but have started trending back up as the crisis is averted and focus returns to inflation and a strong U.S. economy.
On July 6th, the yield returned to positive territory and peaked at 4.094% on July 7th. On July 19th, there was a corrective move in which the yield fell to 3.729%, after which the next significant increase began, ultimately reaching a peak yield of 5.021%. October 23rd.
Since then, yields have been steadily declining. The low yield for the day reached 3.837%, slightly lower than last week’s low yield of 3.831%.
Looking at the daily chart, the price has moved 3.928% over the last 5 trading sessions, ending below the 61.8% retracement of the 2023 range (downside bias). That level is now close to the level that determines bias. If we stay below, the bias will tilt further downwards.
The next major target area approaches the 3.671% to 3.729% swing area (see yellow area and red numbered circles).
What will negatively impact the downward bias in 2024 are:
- Optimism is priced into U.S. yields. If growth/inflation is stronger than expected, US yields could rise across the yield curve. The federal funds target rate remains unchanged at 5.25% to 5.50%. The Fed expects interest rates to reach 4.6% by the end of 2024, but the market is pricing in more.If that storyline changes for reasons of higher inflation, stronger employment, and growth, the Fed could be more stingy with rate cuts (or hold off altogether), resulting in the entire curve moving higher. There is a possibility
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Ironically, if the Fed begins easing sooner (or more aggressively) than expected, it could slow the 10-year decline and shift traders’ attention to the shorter end of the curve. be. The two-year bond yield is now down to 4.281% from its all-time high of 5.259%, while the two- to 10-year bond spread is currently -44 basis points (2024 high point is still a long way off). If the spread returns to positive flow territory, which would push yields higher, it could act as a floor for the 10-year sector.