Chart of the Week - Bond Yields vs Cash Rates
Ponderings on the policy path and bond yield outlook...
Chart of the Week - Bond Yields vs Cash Rates
Policy Path and the Bond Market: With US 10-year treasury yields attempting to push through the key 4% resistance level, and JGB 10-year yields receiving a BOJ wake-up call — making an initial foray above the previous 0.50% yield cap following the YCC tweak last week to a de facto new cap of 1.00% — a valid question is raised: where-to from here for developed market government bond yields?
Last week I looked at a few different indicators, but one of the more interesting charts is this one here showing developed market 10-year government bond yields vs monetary policy rates. Clearly the two walk a very similar path, and for good reason (bond yields reflect expectations of future cash rates, but also cash rates effectively react to and reflect the pulse in growth/inflation conditions — which are also key drivers of bond yields).
The chart hints at 2 things: first, as developed market central banks push further on rate hikes, bond yields see further upside risk; second, for a sustainable peak in yields you basically need a peak in policy rates.
Some of the smaller country and emerging market central banks have begun to pivot towards rate cuts, but this still seems a long way off for developed markets given recent rhetoric and the fears of inflation resurgence. So in lieu of a crisis or sudden stall in the economy, bond bulls may need patience pending policy peak.
Key point: Developed market bond yields and cash rates are pushing higher.
n.b. Check out the full archives of the Chart Of The Week for more charts.
Aside from the Chart Of The Week, this email gives you a brief overview of what was covered in our latest Weekly Insights Report (this email provides a free preview of the Topdown Charts premium service on Substack).
Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at a bunch of other charts across some important and interesting macro/asset allocation issues:
EM Risk Pricing: new lows in EM credit spreads and CDS pricing
Commodity Technicals: important update on the outlook for commodities
Global Monetary Policy Pulse: on pivots, pauses, and peaks
Treasuries: where do the risks lie for sovereign bonds
Stocks vs Bonds: contrasting the technicals vs fundamentals
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Callum Thomas
Head of Research and Founder at Topdown Charts
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