E Gold Prices Extend Gains As Treasury Yields Decline

The 10-year Treasury yield has fallen sharply after hitting the strong channel resistance. The monthly chart of 10-year Treasury yield shows some significant resistance, however daily charts produced a bull flag which was damaged after recent drop. The Fed has increased purchases of long-term paper. The US Treasury slowed its issuance of long-term paper, which created a shortage. The bond markets are no longer concerned about inflation and are bidding up the price of bonds. Equity investors are growing wary about elevated risk in the stock market and, expecting a Fed taper. They are investing in bonds as a safe haven if there is a stock market crash. These factors are the possible reasons at the back of the drop in 10-years Treasury yields.

Interpretation of 10-year Treasury Yield

The monthly chart of 10-year Treasury yields shows the clear big picture.

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US treasury yield analysis

The Fed's balance sheet is increasing dramatically, but there was a significant increase in the balance sheet for the week ending June 16th ($111.9 billion).

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Fed balance sheet

Source: Fred

For the past six months, the consumer price index (CPI) has increased by 5.9% on an annualized basis. While the CPI increase may reflect temporary price spikes due to supply chain disruptions, average hourly wage rates increased at an annualized rate of 4.3% over the same time period. This data indicates longer-term inflationary pressures.

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CPI inflation

Source: Fred

Effect of Treasury Yield on US Dollar Index

The interest rate at which a government can borrow money is known as the sovereign bond yield. Bonds are interest-sensitive securities that the general public can buy and lend to governments, municipalities, and corporations. Central bank policies drive short-term interest rates, whereas bond yields are more affected by market sentiment. In relation to their yield, bond prices move in the opposite direction. For instance, as the price rises, the yields fall.

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