Yields Break Out Signalling the End of the Bull Run

US fixed income products will be the tell that helps investors determine if stronger than expect growth will finally be the nail in the coffin treasuries. The 10-year Treasury yield is trading at 2.25% after closing Wednesday at 2.26% which was the highest rate since December 5. Weaker treasuries reflect higher interest rates which will help the dollar climb higher. Stronger equity prices have failed to lift yields, but the Fed seems to be on hold for the immediate future which could cap short term interest rates.

The 2-year treasury yield broke out and is now trading near 73 basis points which is the highest level seen on this benchmark treasury since the beginning of 2011. The combination of a stronger than expected Q3 GDP report, combined with robust retail sales and solid jobs numbers has lifted the entire treasury curve. Although the Federal Reserve has kept language in their statement that should keep investors calm about immediate future interest rate hikes, treasury investors are taking matters in their own hands, driving down the prices of treasuries. Recall that prices and yields on treasury securities move in opposite directions.

The 10-year note on the other hand may have run its course after a couple violent stabs lower in yield in both October (1.865%) and December (2.009%). Barring an exogenous geopolitical event, that may leave the market a bit more balanced and the yield biased higher to start the New Year. Q4 high points that bear watching are 2.347% (Dec-8) and 2.407% (Nov-7) on the upside for yield, while above the 2.18% 14-day moving average, targeting the 2.48% 200-day moving average on a breakout higher. Yet, falling global yields and slowing economic momentum provide some cover for those who wish to reinstate long positions at better levels.

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