Higher Yields Are Driving Global Markets

The sell-off in the bond market is accelerating today. This, in turn, is driving yields higher. The US 10-year yield traded as high as 4.88% and the real yield as high as 2.52%. These levels were last seen around 2007 and 2008 respectively.

Global market action is subject to this sell-off in US Treasuries, with risk markets under pressure and FXCM's USDOLLAR basket supported. The theme of "higher for longer" is reflected in the latest fixed income moves, which is being driven by strong US economic data. Yesterday August's JOLTS print came in hotter than expected at 9.61m. The market estimate was lower at 8.81m. The implication was that the jobs market remains resilient, which drove yields higher.

The rate of change for yields indicate that they have run higher over a shorter period, which perhaps suggests an emotional component is part of the move. If emotions are running too hot, an element of froth may be a part of the recent rise in yields. In other words, it is possible that there is a part of rampant speculation that is driving yields. To this end, the US10 -year yield is over 80 and overbought on the significant monthly chart (blue rectangle).

Source: www.tradingview.com

The RSI tends to spend most of its time between the 20-80 levels. As such, it is sensical to expect at least a pause or pullback as the indicator resolves to more normal levels.

Moreover, this overbought condition is not limited to the monthly chart. Both the weekly and the daily chart are also overbought, which adds to the hypothesis that rampant speculation is part of the make-up of the move higher in yields.

One of the reasons that the US10-year may normalise is the sharp sell of in the bond market. Just as the yields may have an element of rampant speculation, the bond prices seem to be subject to panic selling. According to Dow Theory, panic selling tends to to be the final stage of a bear market

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To this end, and subject to conjecture, US Treasury market participants may view bonds as value investments at current levels. Whilst technical signals are yet to register as bullish, bond prices are at support levels which may bring in some buying. If so, we may see some relief in yields, which in turn, will likely filter through to global markets.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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