Bond rally puts a 1% 10-year Treasury yield back in sight


A relentless rally in U.S. government bonds is putting a 10-year Treasury yield of 1% back on the radar for traders and strategists.

The widely followed rate touched 1.179%, a five-month low, on Monday — marked by a “definitive breach of the 200-day moving average for the first time since early November 2020,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note. That leaves room for further repricing to continue, “with subsequent resistance some ways off at an opening gap from 1.103% to 1.096%.”

The yield, often a reflection of investors’ confidence in the outlook for growth, hasn’t been at 1% since early January. Investors’ hopes that fiscal stimulus would jumpstart a U.S. economic recovery subsequently sent the rate toward 1.8% in March, not far from the 2% level typically associated with a healthy economy.

“A close below 1.13% should target 0.988% as the next stop,” managing director Tom di Galoma of Seaport Global Holdings wrote in a note. His firm’s call is for 10-year yields to likely bottom to as low as 1% before eventually reversing to higher levels in the fall.

Gang Hu, a TIPS trader with the New York-based hedge fund WinShore Capital Partners, said concerns about slower growth coupled with a Fed that’s not ready to hike soon could make a 10-year yield
TMUBMUSD10Y,
1.193%
around 1% “achievable” within the next two months.

Read: Why a bond rally could drive the 10-year Treasury yield lower still, even as inflation expectations become unmoored

U.S. stocks swooned on Monday, following global equities lower. The Dow Jones Industrial Average
DJIA,
-2.09%
recorded a loss of 2.1%, its worst daily percentage decline since October. The S&P 500 Index
SPX,
-1.59%
fell 1.6% and the Nasdaq Composite Index
COMP,
-1.06%
slumped 1.1%, booking a fifth session in a row of losses.

See: Why did the Dow tumble Monday? Economic growth is now a bigger worry than inflation.



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