The US government bond 10-year yields have increased to 4 year highs. These are well performing bonds that promise high yields to its buyers. However, recently, these 10-year treasuries have come to a level where they have performed their best in 4 years. One might wonder, why, as while the 10-year yields are increasing, the stock market continues to show extreme signs of volatility accompanied by similar overall behavior.
While the treasuries dropped further on Friday, the yields went higher and analysts attribute these factors to it: the inflation prospects remained high and the Fed continued to be aggressive with lifting its interest rates this year.
Figures reveal that the treasuries seem to be doing well. But how well might they be performing?
The answer is simple. The yield of the benchmark 10-year Treasury note yield increased by 2.5 basis points, as it settled 2.949% higher. This is the highest value since January 2014. If we combine these figures, the benchmark 10 year Treasury note yields continued to rise by 12 basis points. This is also the largest 5-day gain in the yield since February 2nd.
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The yields on other notes seem to be increasing as well. The 2 year note yield increased by 2.3 basis points, settling 2.457% higher since its last on August 2008. The maturity yield increased by 8.8 basis points for this week.
Photo by CNBC
Moreover, the 30 year bond yield increased by 3.3 basis points, as it settled 3.138%, its highest since 9th March. The yield maturity increased by 10.5 basis points for this week, which is its largest gain since 2nd February.
Photo by CNBC
Another measure of assessing the market is by looking at the spread between the two notes.
The spread between these two increased to 49 basis points from a value of 41 basis point on Tuesday.
So having talked about the fact that the yields are continuing to rise, it is important to assess what is driving the market.
Interest rates have played a key factor in the constant increase of yields this year. We have had the Fed speech regarding setting interest rates every now and then. These rates are now being speculated to increase 3 more times this year. The investors have established it and now, the diversion and attention is on the yields of 10-year treasuries. The Fed has made it clear that it will continue to show willingness towards tightening its monetary policy. Moreover, interest rate hikes were also expected to come forth in the months to come.
Since the Fed’s sentiment remains quite hawkish, in such instances, the yield curve continues to flatten and this would push the long dated yields to go down while short dated yields would increase.
J.P Morgan Asset Management predicts the 10-year treasury yields to increase higher throughout this year but not go above 3%, as the central banks are expected to relax their stimulus.
People are running towards 10-year treasuries because the markets remain unpredictable. People are running towards safer havens in these tough economic times. There are so many things impinging the market and the overall situation at the moment, that people are now turning their eyes towards something that promises steady returns. We see a change and shift in the economic model as well, as we look at different long term bonds, notes and treasuries to increase in rates and show overall positive behavior. Inflation, the uncertain US and China trade war, the US sanction on Iran and the rise in interest rates by the Fed are certain reasons for this model shift and people’s entrancement of treasuries.