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2 months ago

What is the 10-Year Treasury Yield Telling Us?

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The 10-year Treasury yield is right near its 200-day simple moving average (SMA), a potentially impactful level given that long-term moving averages are often used in technical analysis to gauge momentum and direction for various securities. The 10-year yield passed through its 200-SMA several times over the summer, but this time may be different.

After Election Day in the U.S. last November, market expectations for higher growth and inflation translated into higher interest rates, an event sometimes dubbed “the Trump trade” or “the reflation trade.” Although longer-term rates have waned since their highs in late 2016 and early 2017, the environment clearly changed from the depressed rate environment that characterized summer 2016.

In June and July of this year, when the 10-year yield crossed above its 200-SMA, it was still affected by rates from the period prior to Election Day. However, we are now more than 200 trading days past that point, meaning the 200-SMA, for the first time, does not include data from before the U.S. presidential election, which would make a move above it even more supportive of higher rates. We continue to believe the 10-year yield will end the year in its current 2.25% to 2.75% range, with the potential for as high as 3% if meaningful fiscal stimulus is enacted.*

*Scenario analysis based on this potential interest rate range and the duration of the index indicates low- to mid-single-digit returns for the Bloomberg Barclays Aggregate Bond Index.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

The 200-day simple moving average (SMA) is a popular technical indicator which investors use to analyze price trends. It is the security or index’s average closing price over the last 200 days.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Treasuries are a marketable, fixed-interest U.S. government debt security. Treasury bonds make interest payments semi-annually and the income that holders receive is only taxed at the federal level.

The Bloomberg Barclays Global Aggregate Index measures the performance of global investment grade debt. The index includes treasury, corporate, and securitized fixed-rate bonds.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor

Member FINRA/SIPC

Tracking # 1-651611 (Exp. 10/18)

2 months ago
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