A bond market sale appeals to financial markets, including for foreign exchange. The balance is unlikely to return until the yield on the US Treasury’s 10-year note reaches 2%, a well-known analyst argued on Friday.
“There will be no peace until 10 US reaches 2%,” Kit Juckes, global macro strategist at Société Générale, said in a statement.
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A pair of US government bond auctions, which had been a source of nervousness, have run smoothly in the past week, and yields have settled into a new and larger range, Juckes said. But with the S&P 500 index closing at a record on Thursday, the yield on the 10-year TMUBMUSD10Y note,
pushed back over 1.6%, weighing stocks.
Growing returns triggered the rotation outside of growth-oriented stocks, including technology-related high-capital stocks, in stocks and sectors that are more sensitive to the cyclical and often value-oriented. Nasdaq Composite COMP
slipped into correction territory, defined as a 10% pullback from a recent peak as yields continued to rise, while the S&P 500 SPX,
and Dow Jones Industrial Average DJIA,
they traded on records. All three benchmarks are positive for the week, the Nasdaq jumped in the days when yield growth gave way.
Rising yields have led to new strength for the dollar, which Juckes said he is not keen to fight at the moment. ICE US Dollar DXY Index,
a measure of the currency against a basket of six major rivals, it rose 0.3% on Friday and gained 0.9% so far in March.
“The model seems clear enough: the stock market sees a rotation of the sector, but not a correction; the bond market is seeking a new balance in the light of a much improved economic outlook both in the US and elsewhere; some political decision-makers are pushing back against bond movements with little success, ”Juckes wrote.
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“As yields rise, the dollar shrinks, but when yields return to a new level, the dollar falls back. The pattern is likely to continue until bonds find a balance, unlikely before 10-year yields have a 2-handle, judging by tapered tantrums and past cycles, ”he said.
Societe Generale
Meanwhile, the Japanese dollar / yen USDJPY,
and EUR / Swiss franc EURCHF,
Currency pairs are most sensitive to higher Treasury yields (see chart above), Juckes said, noting that the dollar / yen usually correlates more closely with the real US or adjusted for inflation. yields than nominal rates, while the euro / Swiss franc tends to follow more closely with nominal yields.
Instead, this year saw all four – real and nominal yields, the dollar / yen and the euro / Swissfranc – rise sharply, largely backwards, he said.
“As US yields rise, EUR / CHF and USD / JPY will continue to evolve even further, at least while the momentum is so strong. If we reach 2% yields in 10 years in the coming weeks, the bad extrapolation could bring USD / JPY to 111 and EUR / CHF to 0.96, “he said.” Maybe too simplistic, but these movements are too strong. in order to be able to fight in the short term. “