An implied floor at 4% for US 10-year yields?
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AN IMPLIED FLOOR AT 4% FOR US 10-YEAR YIELDS?
U.S. Treasury yields overall are on a downward trajectory despite Tuesday's modest rise, with most of the Trump trades done for now, according to ING analysts in a research note led by Padhraic Garvey, regional head of research, Americas.
Those Trump trades in the bond market were evident in October up until the U.S. election, with the rise in Treasury yields, as investors sold notes and bonds amid fiscal concerns with a Donald Trump presidency. Trump's economic plan, which includes imposing tariffs on several imported products, is likely to spur inflation.
While nominations for various posts are important, ING notes that "it's the actual policy agenda that really matters", and that's not going to be clear until 2025, from January 20 to be exact, the day Trump gets sworn in.
So the market, ING points out, is back to "contemporaneous economy watching... and that mostly reflects a weakening trend in the data."
The question, however, is whether Treasury yields can continue to go lower. ING believes they can, but with an implied floor of 4% for 10-year yields. The assumption with this scenario is that the fed funds rate is not expected to get much below 4%, suggesting a shallow easing cycle for the Federal Reserve.
U.S. 10-year yields are currently up 3.1 basis points (bps) though at 4.294% US10YT=RR.
"We stick to a contrarian ease lower in the 10-year yield into year-end and that could well continue into January," ING says. "The push can come from some weakening in activity data."
It adds that there is also the likelihood of a 50% retracement of the move from 3.6% to 4.45% on the benchmark yield.
For now, ING advises: "Leave trading the Trump oomph trade on pause till February 2025."
(Gertrude Chavez-Dreyfuss)
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FOR TUESDAY'S OTHER LIVE MARKETS POSTS:
GERMAN ELECTION A "POSITIVE CATALYST" FOR UTILITIES - CLICK HERE
UBS BULLISH ON BIG TECH+ FOR 2025 - CLICK HERE
WALL STREET LONG POSITIONS "VULNERABLE" TO SENTIMENT SHIFT - CLICK HERE
WHY US TREASURY YIELDS MAY DROP DESPITE TRUMP - CLICK HERE
TRADE JITTERS HIT EUROPE, AUTOS DOWN - CLICK HERE
EUROPE BEFORE THE BELL: TRUMP TARIFF JITTERS WEIGH - CLICK HERE
TRUMP'S TARIFF POST SENDS MARKETS SCRAMBLING - CLICK HERE
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