Three key takeaways from the bond market turmoil – Charles Schwab


The late-February spike in US Treasury bond yields sent ripples throughout the global markets.  Ten-year Treasury yields settled at 1.4% after spiking by more than 30 basis points to a peak of 1.6%, the highest level in a year. According to economists at Charles Schwab, the days of  low volatility are likely behind us. The recalibration of yields is likely to be a bumpy process.

Key quotes

“With real yields still in negative territory, there is plenty of room for them to normalize longer term if the economy’s prospects continue to improve. Even without rising inflation, yields can continue to rise. While the Federal Reserve may try to temper the move up in bond yields, if it is too fast or appears likely to hinder the economic recovery, the trend is likely to be higher over time.”

“Short-term interest rates tend to reflect expectations for the path of the federal funds rate and usually don’t diverge that much from the Fed’s estimates. However, over the past week even two-year yields crept up a bit. More importantly, intermediate-term yields moved up sharply. The move suggests that the market is pricing in the risk that the Fed will be hiking rates sooner, and perhaps by more than indicated by the Fed’s projections.”

“The Fed has tools at its disposal to offset the rise in long-term rates. The first step likely would be more communications about why it sees the need to keep rates low. After that, it could buy more long-term bonds, and/or shift some of its purchases of mortgage-backed securities to Treasuries. It could also increase the amount of bonds it is buying.”

“Given the improving outlook for the economy coupled with a central bank willing to tolerate higher inflation, we would expect bouts of volatility ahead as markets reprice for a different environment in 2021 and beyond. Over the long-run, high yields driven by stronger economic growth are positive, but the process can be volatile.”

 

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD climbs to 10-day highs above 1.0700

EUR/USD climbs to 10-day highs above 1.0700

EUR/USD gained traction and rose to its highest level in over a week above 1.0700 in the American session on Tuesday. The renewed US Dollar weakness following the disappointing PMI data helps the pair stretch higher.

EUR/USD News

GBP/USD extends recovery beyond 1.2400 on broad USD weakness

GBP/USD extends recovery beyond 1.2400 on broad USD weakness

GBP/USD gathered bullish momentum and extended its daily rebound toward 1.2450 in the second half of the day. The US Dollar came under heavy selling pressure after weaker-than-forecast PMI data and fueled the pair's rally. 

GBP/USD News

Gold rebounds to $2,320 as US yields turn south

Gold rebounds to $2,320 as US yields turn south

Gold reversed its direction and rose to the $2,320 area, erasing a large portion of its daily losses in the process. The benchmark 10-year US Treasury bond yield stays in the red below 4.6% following the weak US PMI data and supports XAU/USD.

Gold News

Here’s why Ondo price hit new ATH amid bearish market outlook Premium

Here’s why Ondo price hit new ATH amid bearish market outlook

Ondo price shows no signs of slowing down after setting up an all-time high (ATH) at $1.05 on March 31. This development is likely to be followed by a correction and ATH but not necessarily in that order.

Read more

Germany’s economic come back

Germany’s economic come back

Germany is the sick man of Europe no more. Thanks to its service sector, it now appears that it will exit recession, and the economic future could be bright. The PMI data for April surprised on the upside for Germany, led by the service sector.

Read more

Forex MAJORS

Cryptocurrencies

Signatures