Every since the interest rate on the 10 year note peaked in 2018 at a little lover 3.2%, the yield has been on a steady decline falling over 100 basis point in the last eight months. That might not see like a lot, but that’s almost a 33% decline.
NOTE: One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point.
Bond yields are poised to rebound as gains in Treasuries and a market gunning for Federal Reserve interest-rate cuts are at odds with a U.S. economy on firm footing, according to Goldman Sachs Asset Management International.
“When you see the 10-year at 2.4% that just looks too low to us,” James Ashley, the money manager’s head of international market strategy, told Bloomberg TV in Hong Kong. “In the short term, while you have these tensions and this uncertainty, of course you could potentially see yields grind lower. But by the end of the year something closer to 2.7%-ish is somewhere where we would be expecting the U.S. 10-year.”
The 10-year yield touched 2.35% Thursday, its lowest since March 28 when it tumbled to levels last seen in 2017. Treasuries were set for their second weekly advance.
There’s every reason to want to own Treasuries right now. Weak data in China and the U.S. this week highlighted the fragility in the global economy and an escalation in trade tensions left many running for cover. As financial conditions tighten and bets ratchet up that the Fed will need to loosen policy, many investors are positioning for lower yields.
So is James Ashley going to be right, lets go to the charts to get some clues?
On the monthly chart price breached the up trendline to the downside in December and currently sits in the monthly demand zone at 2.322%.
So, James might be right, interest rates might go up in the short term, but my bias is that rates will go down longer term because of the macro picture.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.