Daily Commentary BY THE CURVE TEAM –

US 10 Year Creeping

13th of January, 2021

The movement of the US 10-year Treasury bond yield suggests the outlook for the economy and inflation are gradually changing.

The US 10 year is often referred to as a proxy for investor sentiment. In 2020, as covid spooked markets and the Fed lowered their target cash rates like much of the world, the yield plummeted.

It touched lows of 0.50% in August but has since been recovering. Yields are now above 1%, which is the first time since March it has reached these levels.

This is a reflection of the more optimistic medium-term outlook with vaccines being distributed around the world. Over the course of this year the vaccines should enable more movement of people and goods and services around the world.

Inflation expectations are also part of the story. Income levels have unprecedentedly risen despite a recession in America and Australia and central banks have indicated they are willing to let inflation run hotter for longer.

Market implied inflation expectations for five years is already over 2% in the US, which is higher than pre pandemic levels.

With uncertainty still rife in the global economy, the 10 year yield will continue to be a useful proxy for the state of the economy.

Josh Stewart

Associate - Money Markets