US bond yields creaking amid recent soft data
Fawad Razaqzada February 19, 2019 4:02 PM
With the Fed dropping its hawkish bias, and with recent US data deteriorating slightly, bond prices should remain supported and yields undermined going forward
Earlier today, we noted that sentiment so far this year has been dominated by US-China trade talks and dovish central banks. Obviously there has been a lot more to it than just that: ongoing Brexit uncertainty, the US Government shutdown and slowdown in global data immediately comes to mind. But regardless of the source of concern, it more or less boils down to what it all means to interest rates. Indeed, it is changes in interest rate expectations that move the markets over the medium term. Slowdown in data would require expansionary monetary policy response, while a US-China trade resolution, for example, would offset some of that requirement from central banks. Perhaps that’s why we haven’t seen any meaningful moves in US bond yields over the past several weeks, as negative global data has been offset by positive news headlines regarding US-China trade dispute. Still, with the Fed dropping its hawkish bias, and with recent US data deteriorating slightly, bond prices should remain supported and yields undermined going forward. It is worth mentioning that there are a number of Federal Reserve officials speaking later this week and if there is a growing consensus that interest rates should remain low for longer, then that could be the trigger behind another potential drop in yields. That, in turn, could weigh on the US dollar and supported buck-denominated precious metals even further.
In fact, the breakdown in yields could resume again soon anyway. As can be seen from the long-term weekly chart, below, the 10-year US bond yields have held below the broken trend line and resistance around 2.80% for a number of weeks now without a meaningful rebound. Thus, the pressure is growing on yields to potentially break further lower as investors continue to price out the odds of interest rate increases. So, a potential breakdown towards the next support around 2.50% could be on the cards for the 10-year US debt yield. If that level also breaks, then yields could drop to the subsequent support levels around 2.20% and possibly 1.88% next.
Source: TradingView and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.