Analyst Pin-board US 10-year Treasury rates have been going up. Why?
Bottom line:
- The US yield curve will stay steep compared to a few quarters ago.
- Unlikely that interest rates around the world are going lower.
- The FED is not rising rates but the market is ahead of that.
- Since the beginning of August, 10-yr Treasury yields in the US have gone up from around 0.5% to almost 1.0% (Figure 1). How did this happen? The first obvious reason is, how much lower can they go? Real interest rates in the US and much of the OECD are negative. For example, a six month certificate of deposit (CD) at Citibank or Wells Fargo, two large banks in California, will currently pay an interest rate of 0.05 to 0.50% annually depending on your investment. If you deduct inflation, at around 1.5 to 2.0% per year, a depositor is losing money because the real interest rate that one gets is negative: 0.05-1.50 = -1.45. So it is not a good trade.
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