The yield on 10-year treasuries has fallen from the highs of a few days ago.
In fact, the peak was reached on March 19th, when it touched 1.75%.
At the beginning of 2021, the yield on 10-year US Treasury bonds was below 1%, but it rose rapidly over the first few months of the year.
As early as mid-January it was above 1.13%, and by mid-February, it had risen further to 1.3%.
From February 22nd onwards there was a real surge, culminating about a month later with the 1.7% threshold being exceeded.
In the last few days, however, there has been a slight decline, with a return to around 1.64%, due to recent inflation data showing that price pressure has eased.
It is worth noting, though, that the current levels, while the highest in 2021, are in line with those at the beginning of last year, when the pandemic had yet to break out.
Moreover, they are much lower than in 2018, for example, when they exceeded 3.2%.
The headline price index in the US for personal consumer goods, i.e. excluding food and energy, rose by 0.1% month-on-month, in line with expectations, while the year-on-year index rose by 1.4%, which is slightly below the 1.5% estimate.
In other words, the price increase came in slightly below expectations, which seems to have pushed 10-year Treasury yields marginally, and temporarily, away from their annual highs.
However, it has to be said that the very low levels reached by these yields during the pandemic, with as low as 0.51% in August 2020, were the lowest in 40 years, so the annual high of 1.7% does not seem high in historical perspective either.
The game seems to be played mainly around inflation expectations and the Fed’s monetary policy.
What does the 10-year treasury yield indicate?
The rise in 10-year Treasury yields in the first few months of 2021 would seem to indicate that inflation is likely to increase, but not by a particularly large amount. The 1.7% ceiling reached this week is in line with pre-pandemic levels, and still well below the levels reached during past quantitative easing.
For instance, according to Barclays’ head of economic research, Christian Keller, there are expectations of higher growth in the future, while inflation may rise a lot in the coming months, but only transiently.
