US 10-Year – Daily Chart
The price of the US 10-year yield has moved higher to the 4.19% level and is now a long way from the lows of 3.60% at the height of the Federal Reserve cut expectations. The next upside target is at 4.29%.
An extended rise in US ten-year yields above 4% has taken markets by surprise and saw a small dip in the S&P 500 on Monday.
Backing up a slower move to cut rates, Dallas Fed President Logan said, “If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals”.
Markets are now discounting the chances of a Fed rate cut at -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut. Bond markets appear to be discounting any chance of a 50 point move lower.
Meanwhile, Chinese banks lowered their interest rates in an effort to revive economic growth in China which could be supportive for global growth prospects. Chinese banks cut their benchmark lending rates by a more than expected -25 bp as the one-year loan prime rate (LPR) was lowered to 3.10% from 3.35%.
The recent moves back up the assertion that Chinese stocks are oversold, while US stocks are overbought. Markets are currently too bullish on Fed rates and too bearish on the chances of Chinese recovery. In reality, the balance could be somewhere in the middle without any market shocks.
The US market continues to move through its Q3 earnings season with the likes of Tesla releasing their latest results. US yields may also be rising as investors fret about the US debt, where they see investors needing a higher rate of return to accept the country’s debt.