The price of money
The US 10-year Treasury yield is the price of money, and it affects us all. It has long treated as the global risk-free benchmark, it influences cash returns, mortgage rates and investment valuations. It can also move sharply within minutes of a policy announcement. Why it matters is most if not all financial instruments including debt are priced relative to the yield. The relative appeal of bonds, debt and equity is all relative to US treasury yields.
What to expect in the coming weeks
In the coming weeks you could expect it to move around as sentiment about the US-Iran War and the US Elections changes. There are many actions a US president can take to control bond yield to lower the cost of money. In the past the presidential has taken action such as the tariff backflip. With a lot of pressure from over the price of oil, protectionism, bond yields and political gridlock markets have been expecting intervention before the US mid-term elections. Mostly they want to see a resolution to the closure of the Straits of Hormuz.
With the countdown to the election only a week away it is possible there is no intervention. Markets are increasingly sure there will be an intervention within days of the election irrespective of the outcome. I’m of the opinion markets don’t care who wins along as the current impasse is ended.
What we expect after 3 November
It is why we have been increasing cash in portfolios and selectively bargain hunting.
We expect the drift to continue to after 3rd November, potentially the longest week in recent market history.
You could expect the US administration to pursue de-risking measures, such as an Iran peace deal or major bond buyback, helping yields retreat and markets normalise. Whatever voters decide, the political stalemate is likely to break, creating the clarity markets need to move forward with it a rally into risk assets in November.
Key takeaway:
We are holding course until 3 November, potentially the longest week in recent market history. We expect the US administration to pursue de-risking measures, such as an Iran peace deal or major bond buyback, helping yields retreat and markets normalise. Whatever voters decide, the political stalemate is likely to break, creating the clarity markets need to move forward.