October 10, 2018 | By Hank Cunningham
The U.S. ten-year yield has reached our year-end target of 3.25%. At first glance, the fundamentals favouring higher bond yields, namely strong economic growth, tight labour markets and elevated consumer confidence, to name a few, remain in place.
In the short run, it is likely that bond prices will recover after such a swift fall, perhaps pushing 10 year Treasury yields back close to 3%.
The Federal Reserve will continue to withdraw monetary stimulus as it moves the Fed Funds Rate past a neutral setting and as it continues to run down its balance sheet holdings. Some cracks are showing in the corporate bond market, both investment grade and high yield, and we will see some widening of yield spreads from government bonds.
Longer term, we believe bond yields will continue to grind higher with a target of 3.5% to 4% for the bellwether U.S. ten-year.