US Treasury 10-year yield chart (%) daily
It's quite amazing when you try to measure the movement here with yields rising from 4.15% to 4.42% in just over a week. I mean, we're still trapped within the range seen after the US election for now. But as we move closer to 4.50%, the nerves may begin to show in broader markets as well.
USD/JPY is already a major beneficiary from all this, especially with the BOJ set to keep interest rates unchanged later this week. The two are also fishing for a seventh day of winning as seen here.
Circling back to the bond market though, how much of this is tied to Fed expectations and/or how much of this is tied to the political and economic outlook in the US? Now, that is a very difficult question.
There may be a line of thinking that traders expect the Fed to cut this week and then point to a complete stop. If so, I think they will be disappointed because Powell may not be very clear about that. That will certainly slow down short-term rates at least. But is the longer limit increasing because of a more encouraging economic picture?
As a reminder, the yield soared higher before the election as traders tried to price in a Trump win. And they got that at the end of the day.
So, was the latest dip in yields just a correction and we are now seeing the natural fundamental trend resume its course? There is certainly an argument for that. This line of thinking depends on Trump strengthening the economy next year, with or without tax cuts. And with recent continued economic stability, the US continues to show itself to be the cleanest shirt among the dirty laundry.
Either way, things are definitely heating up ahead of the Fed tomorrow. If there is any reason for the yield to run towards 4.50% and possibly break that after that, risk trades will be up for some pain in the second half of the week.
