November Outlook
November 6, 2018  |  By Hank Cunningham

The U.S. ten-year yield reached our year-end target of 3.25% briefly and has fallen modestly. All signs point to higher yields at all maturities. The Federal Reserve and the Bank of Canada are clear in their goal of “normalizing” interest rates, likely leading to a further increase of 100 basis points in administered rates during the next twelve months.

As for market yields, they are heading higher as the employment market remains strong with the unemployment rate at 3.7%, seven million unfilled jobs, and wage growth kicking in above 3%. Besides this, the U.S. Treasury increased its debt sales to $83 billion per quarter and the Fed continues to unwind its balance sheet.

Corporate bonds, both investment grade and high yield, suffered in October but remain at relatively narrow spreads from government bonds.

In short, we believe bond yields will continue to grind higher with a target of 3.5% to 4% for the bellwether U.S. ten-year.