The U.S. economy's anticipated resilience against potential recession has led to a government debt selloff, bringing the benchmark 10-year Treasury yield close to 5%. This yield, which influences consumer and corporate borrowing costs, peaked at 4.86% during Tuesday morning trading in New York, a rate unseen since August 8, 2007.
A shift in market focus from Middle East tensions to strong U.S. retail sales for September and the absence of geopolitical escalation has been observed. BMO (TSX:BMO) Capital Markets strategists Ian Lyngen and Ben Jeffery noted this shift in their report "Bears are Back in Town," citing no reasons to be optimistic about the underlying security.
The 2-year yield BX:TMUBMUSD02Y is approaching a 17-year high, with rates on everything from the 3-month Treasury bill BX:TMUBMUSD03M to the 30-year bond BX:TMUBMUSD30Y also increasing. U.S stocks DJIA SPX COMP have shown mixed responses to these developments.
Gennadiy Goldberg, U.S. rates strategist at TD (TSX:TD) Securities, pointed out an "air pocket" between 4.5% and 5.3%, predicting a low hurdle for the 10-year benchmark rate to reach the 5% mark soon due to lack of resistance. Goldberg did warn, however, that escalating geopolitical tensions, especially with President Biden's travel to Israel, could trigger a sharp drop in yields.
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