US 10-year yield: Technical indicators extended? - BBH

Analysts at BBH explain that the US 10-year yield The US 10-year yield finished the last week near 2.85% while surveys at the end of last year suggested that the median forecast for year-end was 2.9%-3.0%. 

Key Quotes

“While many understood that the supply and demand considerations--more of the former and less of the latter (e.g. Fed will buy $420 bln less than in 2017), pointed to higher yields, but the magnitudes may have been underestimated. Also, about a third of the increase in the nominal 10-year yield (15 of 45 bp increase this year) can be accounted for by the increase in inflation expectations (e.g.,10-year breakevens).  The technical indicators for the March futures contract are extended but have not turned.”

“Much ink has been spilled discussing the break of the long-term downtrend in US yields with the recent rise in rates.  We suspect that too much is being made of it.  The break of the trend line does not mean the yields will inexorably rise back to the double digits.  The violation of the trend line should not distract from the appreciation that we still live in a modest growth, low inflation environment.  This will cap interest rates.  In addition, the business cycle has not been repealed and it appears that the US is showing an increasing number of late-cycle behavior.”