US 10-year Treasuries hit the 3% mark, but now what?

Rabobank analysts are out with a note detailing why the US Treasury yield, which has been the subject of intense focus this week, may be getting propped up by knock-on structural factors rather than outright fear or market disarray.

Key quotes:

"After several years of serious flirtation, we finally saw the 10-year US Treasury yield go through 3.0% yesterday."

" Let’s not repeat that there are plenty of structural factors leaning on borrowing costs. Oil prices, which have seen a good recent correlation with higher bond yields, also dropped back quite sharply yesterday, -2.1% from intra-day peak to the close. Of course, oil is closely tied to political developments in Washington DC, where French President Macron is visiting US President Trump."

"Indeed, part of the oil sell-off, and hence briefness of the US 3% experience, was that Macron has proposed a new deal with Iran that would curb its nuclear program and ballistic missile development. Presumably this is instead of just withdrawing from the current “ridiculous, insane” deal cold, in Trump’s words. However, that optimism suggests Tehran is simply going to accept new terms offered to it - and there is no sign of that being the case. Let’s see what happens as we head towards 12 May."

"The same “next week is going to be interesting” timetable is also true for China, where yesterday the Politburo warned of something: that Q1 GDP was the highpoint for the year, and things are going to get far trickier ahead. Note that even as US yields flirt with 3%, China’s 10-year yield had fallen from 4.04% in late November to just 3.50% a few days ago. In fact, China is talking about the need for fiscal stimulus, which did see a brief spike in China’s 10-year yields back to 3.60%, but the trend remains down. Given the IMF says the fiscal deficit there is already 13% of GDP, that underlines the sensitivity around the country’s economic firewall of a huge trade surplus, without which things could get ugly fast."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.