Conclusion, Investment Implications, Strategy

The recent rise above 1.37% to 1.47% in the yield of the benchmark 10-Year Note appears to represent an emerging secular trend change toward higher long term US interest rates.  A rise above 1.70%, which is currently being tested, would clear the way for a move up to the next important overhead level at 2.05%.

Introduction

The benchmark yield of the US 10-Year Treasury Note is trading at 1.59% this morning, its highest level since January 2020.  This equates to a 114 basis point, 207% rise from its 0.55 bps closing yield on Jly 30th 2020 and appears to represent an emerging secular trend change toward higher long-term US interest rates.  Moreover, the recent sharp rise in long-term US interest rates would support the inflation fears that have been swirling around the markets and can be seen in rising inflation expectations, rising commodity prices, and US Dollar weakness.

US 10-Year Yields Weekly Since 2012

Chart 1 below plots the weekly closing yield of the US 10-Year Treasury Note since 2012 along with its 13-week (quarterly, blue line) and 52-week (yearly, orange line) moving averages.  It shows that the quarterly and annual trends are currently positive, toward rising yields. 

Chart 1

The chart also shows that very formidable overhead yield resistance at 1.37% to 1.47%, which represents the July 2012, July 2016, and Aug 2019 lows, has been broken as of this month.  We pointed out this resistance area in our Feb 27th Monthly Investment Compass and said, if broken, It would clear the way for a rise to the next level at 1.70%.  1.70% is being tested now, and the 1.47% to 1.37% area now becomes primary underlying support for these yields.

Should 1.70% be broken to the upside, this would clear the way for a test of the next overhead yield level at 2.05%.

US 10-Year Yields Monthly Since 1900

Chart 2 below plots the monthly closing yield of the US 10-Year Treasury Note since 1900.  The red highlights show that the 1.37% to 1.47% yield resistance area also includes the November 1945 lows which were set two months after World War II ended.  The historical importance of 1.37% to 1.47% is why we believe the current move to 1.69% is so significant. 

Chart 2

Going forward, the longer that these yields remain above 1.37% to 1.47%, the more likely it represents a  generational shift in the direction of long-term US interest rates. 

The blue highlights put the recent sharp rise in long term US interest rates into perspective, showing that the 120-year monthly average yield in the10-Year Note is 4.55%.  So, as improbable as it may seem for these yields to move this high, this fast, they could continue to rise by an additional 2.86% from here and just be back to their historical norms.