Seeing as to how the bond market is faring to end the week, you probably wouldn’t have guessed that we actually got hotter-than-expected inflation data from both the US CPI and PPI reports in the past few days. In fact, you might even think it was the opposite. Yet, here we are.
10-year Treasury yields are down to 5.09%, poised for back-to-back weekly declines for the first time since June. That is certainly keeping things interesting with yields tumbling back to draw in the 5.00% mark again as broader market sentiment turns more cautious.
The rejection this week at 5.30% following the US CPI report stands out rather clearly, with yields failing to sustain a break higher before retreating sharply. And that now puts the spotlight back on the 5.00% level, which had previously played the role in keeping yields from breaking out back in September.
As such, it would require a firm daily close below 5.00% to deliver a stronger signal that the recent upward momentum is starting to unravel.
After which, that could open up a move towards 4.70%, where the 100-day moving average (red line) is also sticking nearby at 4.73%. Further below, the 200-day moving average (blue line) around 4.50% could come into consideration.
But for now, it’s baby steps first. I wouldn’t be too quick to call an end to the broader uptrend just yet.
10-year yields are still comfortably holding above the key 5.00% threshold in the past few sessions. And any semblance of a rebound back towards 5.20% or even 5.30% again would put the recent rejection back to the test.
And from a fundamental standpoint, nothing much has really changed. Inflation pressures are still holding up and the same structural factors underpinning yields since last month are also still very much in place. Heavy Treasury issuance and concerns about the long-term trajectory of US debt are key reasons why investors are demanding more compensation to hold longer-dated government bonds.
But at least for the time being, all eyes are turning back to the 5.00% mark as the line in the sand. Hold above and we’re still talking about the upward pressure in yields being sustained for the most part. But break below, and this could turn the sharp pullback this week into something more meaningful perhaps.
This article was written by Justin Low at investinglive.com.