Treasury yields are continuing to soar to start the new year and one can argue that the selloff in bonds is perhaps one that is more technical, but also backed by a more hawkish Fed last week. This chart continues to highlight all of that:
As things stand, 10-year Treasury yields are looking to break 1.80% and there isn’t much in the way of yields pushing higher towards the November and December 2019 highs around 1.95% to 1.97%. That makes the 2.00% mark a key psychological level to pay attention to.
The US jobs report was a good enough trigger for the bond selloff to continue so look out for potential reverberations to FX and stocks. I outlined some thoughts on that last week here:
“As much as higher yields may pose a problem for stocks, I don’t see much of that unless we start to go beyond the March 2021 highs above 1.75%. Even so, one can argue that only a move closer towards 2% may be significant in pulling down equities sentiment. Otherwise, if the move does not extend too far, too fast, then stocks may breathe a little easier.
As for the bond market outlook and why yields are looking to trend higher, I talked about that more in-depth here: What next for the bond market in 2022? “
There’s a good argument for yields to trend higher this year but it is all coming rather quickly in the opening week or so. I fear that the selloff is getting a bit too ahead of itself and things may stall for a period of time in the months ahead.
With inflation at present levels, the key threshold isn’t so much the Fed hiking to 1%. It is more so trying to tinker around and getting that 1% to 2%. That is unlikely unless the present high inflation pressures show so no signs of cooling by next year.