🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Is the 10-Year Treasury Yield Headed Lower?

Published 18-06-2024, 05:44 pm
US10YT=X
-

The US 10-year Treasury yield continues to defy The Capital Spectator’s ‘fair-value’ estimate by trading at a premium to this model, but the relatively wide gap still appears to be a constraint to the upside for this key market rate.

As discussed in recent months, it’s the view on these pages that without a material upside change in the fair value estimate, the 10-year yield will likely face headwinds to rising further. Recent market activity for the 10-year rate is starting to fall in line with this view.

Consider that the 10-year yield has been trending down for much of the past two months, closing at 4.29% on Monday (June 17) – near the lowest level since late March.US 10-Year Yield-Daily Chart

Earlier this year the market premium for the 10-year yield increased to an unusually high but not unprecedented level. That’s been a sign that the degree of market premium is near a peak–a forecast that’s starting to resonate via market data.

For some perspective, start with the history of the average fair-value estimate (based on three models) vs. the market yield. Using monthly data, the current average fair-value estimate is 3.34% for May, the first dip this year. Meanwhile, the market yield remains more than 100 basis points higher at 4.48% as of last month, although here too the market rate ticked lower for the first time in 2024.

US 10-Year Yield vs Avg of 3 Fair Value Model Estimates

For a clearer view of the relationship, the next chart tracks the market rate less the average fair-value estimate. This spread has fallen modestly from its recent peak. If history is a guide, the market premium will ease further in the months ahead.

10-Year Treasury Yield less Avg Fair Value Estimate

A lesser spread implies the market rate will fall, the average model estimate will rise, or some combination of both. Short of a relatively dramatic run of reflation in the US economy and/or a strong acceleration in economic growth relative to recent history (neither of which looks likely at this point), the path ahead seems to favor a lower spread.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.