Bond market sales call the tune across financial markets, including foreign exchange. Equilibrium is unlikely to return until the yield on the 10-year U.S. Treasury benchmark note hits 2%, one well-known analyst said Friday.
“There will be no rest until the US 10n reaches 2%,” Kit Juckes, global strategic macro at Société Générale, said in a note.
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A pair of U.S. government bond ropes, which had been an embarrassment, went off without any major problems over the past week, with yields settling into a new and higher range, said Juckes. But with the S&P 500 index closing at Thursday’s record, the yield is on the 10-year note TMUBMUSD10Y,
pushed back above 1.6%, with pressure on stocks.
Yields are on the move away from growth-oriented stocks, including large, technology-related shares, into more fragile and often valued stocks and sectors. . The tech-heavy Nasdaq Composite COMP,
they slipped into correctional territory, defined as a recent 10% pullback from a recent peak, as yields continued to climb, while the S&P 500 SPX,
and Dow Jones industrial average DJIA,
on trading at records. All three criteria are positive for the week, with the Nasdaq kicking on days when the climb climbed in yield.
The yields are rising on renewed strength for the dollar, which Juckes said he was unwilling to fight at the moment. US DXY ICE Dollar Index,
the amount of cash against a basket of six major competitors, was up 0.3% on Friday and has gained 0.9% so far in March.
“The pattern looks clear: The equity market is seeing rotation in the sector but not correction; the bond market seeks new equilibrium in line with a highly developed economic outlook in the U.S. and elsewhere; some policymakers are pushing back against bond transfers, with little success, ”Juckes wrote.
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“As yields rise, the dollar accumulates, but when yields reach a new level, the dollar falls back. The pattern may continue until bands find symmetry, unlike 2-year yields with 2-year yields, judging by taper tantrums and previous circles, ”he said. .
Societe Generale
Meanwhile, the Japanese dollar / yen USDJPY,
and euro / Switzerland EURCHF franc,
currency pairs are the most sensitive to higher Treasury yields (see chart above), Juckes said, noting that dollar / yen typically binds more close to real, or a change in U.S. inflation. yield of the specified rates, while euro / Swiss francs tend to follow closer to a specified yield.
Instead, this year the four – real and nominal yields, dollar / yen and euro / Swissfranc – have moved significantly higher in a gray phase, he said.
“As US output rises, it is likely that EUR / CHF and USD / JPY will continue to move higher as well, at least as long as this trend is strong. If we get a 2% 10-year yield in the coming weeks, a dumb USD / JPY outturn could bring it to 111, and EUR / CHF to 0.96, ”he said. “It may be too simplistic, but these moves are too strong to fight in the short term.”