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The benchmark US Treasury 10-year note yield rose for the fourth consecutive quarter, reaching a staggering 3% before fears of increasing trade tensions and slowing global growth led investors to relative security. public debt. Inflation could accelerate, job gains for US workers and speculation that the Federal Reserve could raise interest rates four times this year have helped boost yields to nearly seven years of 3.109% on May 17th. 19659004] Yields dropped to 2.847% on Friday as investors focus on the threat to global economic growth posed by growing trade tensions between the United States and its major trading partners. Rates proposed by the president
Donald Trump,
which would affect imports from countries like China, Germany and Canada, could impede cross-border movement of goods and capital, while disrupting supply chains for car manufacturers and other industries .
influences borrowing costs for consumers, businesses, and state and local governments. It tends to go up and down with expectations for the pace of growth and inflation. Economic growth can reduce the attractiveness of public debt by making other assets more attractive, while inflation erodes the purchasing power of debt and fixed debt payments [19659004]. Still, many investors do not know if the economy can continue to grow fast enough to warrant higher bond yields. And some investors believe that the Fed's rate hikes have increased the value of the dollar against emerging market currencies, fueling volatility that could also hinder growth.
"We've probably seen the top in 10 years unless things start at" Andrew Brenner, head of Global Fixed Income at NatAlliance Securities
Yields have been rising rapidly early in the quarter, but have fell back around 2.9% as trade tensions increased.According to some analysts, tariffs have not yet affected the price of consumer goods, with many investors viewing them as tactics. rather than as warning signs of a slowdown, but tensions are prompting investors to debate the impact of tariffs on economic growth and job gains.
" All trade agreements have a long fuse, "said Jim Vogel, head of government bond strategy at FTN Financial." You do not necessarily change [the] forecast economic ions based on where we are today; the market has recognized that there is a potential impact of tariffs. "
Higher yields this quarter have added to the difficulties in emerging markets, as foreign investors are turning away from developing economies, with some analysts arguing that countries with dollar-denominated debt are particularly hard hit by higher yields, as the strength of the dollar often rises alongside Treasury yields
Recent data shows signs of a pickup in inflation, prices are coming out of a post-crisis rut. oil has also helped push inflation up, with US crude gaining about 23% since the beginning of the year.
Yet, as with rates, analysts believe that this is not the case. is not yet translated by higher prices.And the 10-year equilibrium rate, which indicates that investors are betting on the average annual inflation over the next 10 years, slipped from a recent high in May, ending Friday at 2.12 percentage points.
Some analysts say that they believe the 10-year yield will likely exceed the peak of this year later this year. But even then, the counter-currents will prevent it from rising much higher.
"There is too much geopolitical risk there," said Gary Pollack, Head of Fixed Income Operations at Deutsche Bank Private Wealth Management. "As yields go up, it's going to be very slow."
If the Fed raises its rates four times in 2018, it would be the largest number of years since 2005, when rates rose eight times. Futures on federal funds, used by investors to focus on central bank policy, have recently shown a 48% chance that the Fed will raise double the rate this year, according to data from the CME group. Treasuries at age 10 hit their lowest level in more than a decade. Several analysts said investor confidence indicates that the Fed will continue its rate hike trajectory, tempered by skepticism about the long-term outlook for growth and inflation.
"The Fed has been quite aggressive in its rhetoric and rhetoric," said Tom di Galoma, managing director and head of treasury operations at Seaport Global Holdings. "They want to raise rates to make sure They will have enough ammo if the economy falls into a recession. "
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-Daniel Kruger contributed to this article.
