Treasury 10 year yield to continue down
Updated
The blue rectangles are Fibonacci retracements from two previous lows (Jul 2016, Sep 2017) and the Oct 2018 high. The yield is well-behaved and two Fibonacci levels often cluster around similar levels. The yield went down to 2.6 but has recently increased to 2.7, I do believe that the yield will continue to go down. The 2.1 level should be a target for the next quarter or so. Note that is is a longer term forecast. I have no opinion on what will happen in January
How can this happen when the Fed is increasing the federal funds rate? Well the 10 year yield has much longer duration and is set by market forces to a larger extent. However, the details are beyond my pay-grade. It is possible that the Fed eases off any further rate increase or the long-term rates might just do their own thing. The Fed is also reducing its balance sheet.
The long-term yield is very important for equities, which have showed a very high positive correlation with the yield. I believe the treasury market is so deep and liquid that it influence on the stock market is very high. There is of course a mutual influence, but treasury ==> equities is likely to be stronger.
How can this happen when the Fed is increasing the federal funds rate? Well the 10 year yield has much longer duration and is set by market forces to a larger extent. However, the details are beyond my pay-grade. It is possible that the Fed eases off any further rate increase or the long-term rates might just do their own thing. The Fed is also reducing its balance sheet.
The long-term yield is very important for equities, which have showed a very high positive correlation with the yield. I believe the treasury market is so deep and liquid that it influence on the stock market is very high. There is of course a mutual influence, but treasury ==> equities is likely to be stronger.
Note
I think the Fed has been pushed into submission. The market recalibrated its expectation and lowered long term rates, which the stock market likes. The stock market likes surprise lower interest rates, but responds negatively to the normal lower interest rates, i.e. when they edge lower, the market tends to follow.That is likely to be the case again, but I do think the S&P 500 will push a bit higher
Note
Yield is going down further. This time it will not be due to a surprise Fed move, so the stock market will follow down. I don't know about the speed. We could hit 2.1 in April or in 6 months. The important is the direction of the trend
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