Posted by lplresearch
Economic Blog In LPL Research Outlook 2021: Powering Forward, we noted that large interest rate declines historically have been followed by reversals. With the 10-year Treasury yield continuing to climb, now’s a good time for an update. As shown in the LPL Chart of the Day, since 1990, the 10-year Treasury yield had declined at least 1.5% in a year seven times, based on quarterly data. The most recent decline was as of the end of March 2020. Will history hold true this time around?
“The previous six times the 10-year Treasury yield was down at least 1.5% in a year as of the end of the quarter, it was higher a year later every time, by an average of 0.92%,” said LPL Research Chief Market Strategist Ryan Detrick. “Well, we saw a new large decline at the end of March 2020, and while the final number won’t be in until the end of March 2021, as of last week, the 10-year yield was up again.”
While the climb in yields is consistent with history, the move so far has been slower than average, rising 0.40% since the end of March 2020 as of Thursday, January 21, 2021. But, the one-year period isn’t over yet, and rates have been steadily pushing higher. Since the start of August 2020, the 10-year Treasury yield has been climbing at a rate of about .08% each month. If rates continued to climb, we would close further on the long-term average increase, although moves over such a short time frame are unpredictable.
Extend that recent monthly pace for a year and that would be an annual increase of 0.96%. We believe rates will continue to increase in 2021 but the pace will slow over time as buyers are pulled into the Treasury market by an increasingly attractive yield, potentially limiting some of the upward momentum. Overall, we think the rate action we’ve seen so far in 2021 is consistent with our Outlook 2021 forecast of 1.25–1.75% as of year-end 2021, and we reaffirm our forecast.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
Not Insured by FDIC/NCUA or Any Other Government Agency
Not Bank/Credit Union Guaranteed
Not Bank/Credit Union Deposits or Obligations
May Lose Value