The U.S. economy's anticipated resilience against potential recession has led to a government debt selloff, bringing the benchmark 10-year Treasury yield close to 5%. This yield, which influences consumer and corporate borrowing costs, peaked at 4.86% during Tuesday morning trading in New York, a rate unseen since August 8, 2007.
A shift in market focus from Middle East tensions to strong U.S. retail sales for September and the absence of geopolitical escalation has been observed. BMO Capital Markets strategists Ian Lyngen and Ben Jeffery noted this shift in their report "Bears are Back in Town," citing no reasons to be optimistic about the underlying security.
The 2-year yield BX:TMUBMUSD02Y is approaching a 17-year high, with rates on everything from the 3-month Treasury bill BX:TMUBMUSD03M to the 30-year bond BX:TMUBMUSD30Y also increasing. U.S stocks DJIA SPX COMP have shown mixed responses to these developments.
Gennadiy Goldberg, U.S. rates strategist at TD Securities, pointed out an "air pocket" between 4.5% and 5.3%, predicting a low hurdle for the 10-year benchmark rate to reach the 5% mark soon due to lack of resistance. Goldberg did warn, however, that escalating geopolitical tensions, especially with President Biden's travel to Israel, could trigger a sharp drop in yields.
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