It seems that everyone’s been talking about, thinking about and perhaps even panicking about the 10-year U.S. Treasury bond yields which touched above the 3 percent handle yesterday for the first time since 2014. But despite the hype, not all traders know exactly what this move means and how it’ll impact the markets. Here are some things to think about when you’re planning your upcoming trades.
1 – Rising bond yields mean that central banks are likely to increase interest rates, which will make operating costs higher for companies. When operating costs are higher companies have more difficulty raising salaries and providing returns to their shareholders, which puts less money back into the economy.
2 – 10-year notes are also used to set mortgage rates which means that home purchases may fall as loans will become more expensive. Declining home sales usually has a negative impact on a country’s economy, which of course has a direct impact on the value of its currency.
3 – Analysts are concerned that since the 10-year U.S. Treasury bond yield broke through the key 3 percent level, it could signal that they’ll head even higher, which could cause a stock market crash.
4 – According to Seamus Mac Gorain from JPMorgan Asset Management, “[We] expect 10-year Treasuries to end the year between 3 and 3 ½ percent. A move beyond this level would likely require an acceleration of inflation in the euro zone and Japan, which is not yet evident.” Japan’s central bank is trying to reach a 2 percent inflation rate by 2019, though the progress has been painfully slow due to the yen’s recent strength.
For now, traders should just stay aware of the changing rates and should digest this information in conjunction with their technical strategies without panicking about what the future holds.