Prepare Yourself For Much Higher Long-Term Interest Rates

The Bottom Line: History Matters

The recent rise above 1.37% to 1.47% in the yield of the benchmark 10-Year Note appears to be an emerging secular trend change, toward significantly higher long-term US interest rates. A sustained rise above a 1.70% yield in the 10-Year would clear the way for a quick move up to 2.05% which, if reached, would be its highest level in almost two years.

WASHINGTON, DC - JANUARY 29: Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on January 29, 2020 in Washington, DC. Chairman Powell announced that the Federal Reserve will not be adjusting interest rates. (Photo by Samuel Corum/Getty Images)

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Introduction

The yield of the US 10-Year Treasury Note, the benchmark measure of long-term US interest rates, finished last week at 1.73%. This is its highest level since January 2020 and equates to a huge 119 basis point, 215% rise from its 0.55 bps closing yield on July 30th, 2020. It represents an emerging long-term trend change toward significantly higher long-term US interest rates in the weeks, months, and potentially years ahead. 

Moreover, this recent sharp rise in long-term US interest rates corroborates the inflation fears that have been swirling around the markets and can be seen in rising inflation expectations, rising commodity prices, and a weakening US Dollar.

US 10-Year Treasury Yields Over The Past Decade

Chart 1 below plots the weekly closing yield of the 10-Year Treasury Note since 2012 along with its 13-week (blue line) and 52-week (orange line) moving averages.  We use these moving averages to define the quarterly and annual trends, both which are currently positive as yields are trading well above both of them. This simply means long-term interest rates are trending higher.

This positive trend comes on the heels of an annual trend of sharply declining yields between December 2018 to November 2020, during which they collapsed from 2.85% to 0.55%.

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