US: 10-year yields surprisingly firm – BBH

Aside from the dramatic swing in US yields on last Tuesday (February 6), the US 10-year yield remained surprisingly firm in the wake of the dramatic decline in equities, explains Marc Chandler, Global Head of Currency Strategy at BBH. 

Key Quotes

“New expenditures have been added on top of the tax cuts, which reduce revenue.  This underscores supply concerns at the same time the Federal Reserve will buy $420 bln less than last year.  Despite the recently reported rise in average hourly earnings, which spurred talk of inflation, the increase in nominal rates remains primarily a function of an increase in real rates.  The 10-year breakeven fell seven basis points last week, while the 10-year nominal yield rose a single basis point.  That said, the technical indicators of the March 10-year note futures suggest a bottom of some import is in place and the risk lies to the upside of price, suggesting yields will ease.”