The 10-year Treasury yield finally reached 3 percent, a milestone that bond traders were eyeing for months to guide their next moves.
Then that pesky stock market got in the way.
After all the hoopla surrounding 10-year yields touching the highest in four years, they couldn’t sustain their highest levels of the day, ending at 2.9995 percent. That’s in part because of the dive in equities, driven both by losses in technology shares and by Caterpillar Inc. effectively saying its first-quarter profit will be as good as it gets in 2018.
It’s the latest manifestation of the tug-of-war between stocks and bonds that’s already been evident this year. In February, the specter of accelerating wage growth sent U.S. yields to four-year highs just below 3 percent, which played a role in the equities correction that followed. Last month, Treasuries finally rallied through key resistance levels amid turmoil around Facebook Inc. and other tech companies.
So even though hitting 3 percent may point to higher yields in the world’s biggest bond market, it’s a reminder that they may not come as fast as the last few months.
“I tend to think yields are going to keep rising in general, but with the break of 3 percent I still don’t think we are going to be at, say, 3.5 percent right away,” said John Briggs, head of strategy, Americas, at NatWest Markets. A 10-year yield of about 3.2 percent at year-end is more reasonable, he said.
Rates Consensus
The consensus across Wall Street agrees: Rates are rising, but perhaps not in a hurry. JPMorgan Chase & Co. estimates the 10-year yield will end 2018 at 3.15 percent, the same as the median forecast of 56 analysts surveyed by Bloomberg.
In some ways, the Treasury market still hasn’t tested the true high-water mark of the recent past. That would be 3.0516 percent, the peak from Jan. 2, 2014. For Goldman Sachs Asset Management, 3 percent is just a passing point.
“We’ve consistently been saying we expect 3.5 percent before 2.5 percent,” Sheila Patel, chief executive officer of GSAM’s international division, said in an interview with Bloomberg Television. “If it’s a measured reasonable pace, and if the reasoning is because of growth, it doesn’t mean a debacle.’’