Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Market Anticipates Fed Pivot as 10-Year Yield Retreats

By James PicernoBondsNov 15, 2023 07:44
ca.investing.com/analysis/market-anticipates-fed-pivot-as-10year-yield-retreats-200584311
Market Anticipates Fed Pivot as 10-Year Yield Retreats
By James Picerno   |  Nov 15, 2023 07:44
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US10Y...
+1.04%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
SCHW
+1.79%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Today’s “fair value” estimate of the US 10-year Treasury yield continues to suggest that the current market rate is unusually lofty and that the spread will soon narrow. Yesterday’s sharp drop in the 10-year yield (triggered by upbeat inflation news for October) suggests that the process of normalizing has started.

Tuesday’s bond market rally cut the 10-year rate to 4.44% (Oct. 14), marking a two-month low (bond prices and yields move inversely).

UST10Y-Daily Chart
UST10Y-Daily Chart

Meanwhile, CapitalSpectator.com’s fair-value estimate for October (using monthly data) shows that the market level surged to 1.94 percentage points – a 40-year high. (The model is based on the average of three methodologies, summarized here.) The current average model estimate for the 10-year rate is 2.86% for last month — far below 4.80% level for October (as well as yesterday’s 4.44%).

10-Yr Yield vs Avg. of Threee Fair-Value Model Estimates
10-Yr Yield vs Avg. of Threee Fair-Value Model Estimates

Although the modeling shows that October’s spread isn’t unprecedented, history suggests such an extreme level doesn’t last long. As I noted in last month’s update (which still applies today):

“The market is pricing the 10-year yield at what appears to be a lofty and arguably unsustainable level.”

10-Yr Yield Less Avg. Fair-Value Estimates
10-Yr Yield Less Avg. Fair-Value Estimates

Yesterday’s sharp slide in the 10-year rate may be the start of normalizing the spread. Catalysts include expectations that the Federal Reserve is done with rate hikes for this cycle.

“The market’s telling you they expect the Fed to start easing sooner rather than later,” says chief fixed income strategist Kathy Jones. “I would guess early 2024.”

Yesterday’s “positive inflation news helps cement the case for a Fed pause on rate hikes,” advises Morningstar senior U.S. economist Preston Caldwell.

In turn, the case appears to be strengthening for expecting a narrowing spread between the current 10-year yield and the average model estimate shown in the chart above.

Market Anticipates Fed Pivot as 10-Year Yield Retreats
 

Related Articles

ING Economic and Financial Analysis
A Structural ECB Bond Portfolio to Benefit EGBs By ING Economic and Financial Analysis - Feb 27, 2024

By Benjamin Schroeder Overall, we think the bearish sentiment can keep going in the near term. For markets, the main focus remains on the assessment of the US macro backdrop, with...

TrackInsight
A Difficult Start to the Year for Bond Markets By TrackInsight - Feb 19, 2024

With a Labor Department report showing U.S. consumer prices increased more than expected in January amid rises in the costs of shelter and healthcare, the week did not allow U.S....

Market Anticipates Fed Pivot as 10-Year Yield Retreats

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email