RINGING IN THE NEW YEAR: US AND OTHER GOVERNMENT NOTE TRENDS © Leo Haviland January 6, 2020

“Time present and time past

Are both perhaps present in time future,

And time future contained in time past.” T.S. Eliot’s poem, “Burnt Norton”

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CONCLUSION

Since summer 2016, the marketplace yield trends for government 10 year notes of the United States and many of its key trading partners generally have resembled each other. Given today’s interconnected global economy, the crucial role of the United States within it, and the roughly similar central bank policy strategies for these nations, this pattern probably will continue.

Over the past three and one-half years, at times some moderate divergence appeared within that group. For example, yield highs for China’s 10 year government note (11/27/17’s 4.04 percent) and the German Bund (2/8/18’s .81 percent) preceded America’s critical yield top on 10/9/18 at 3.26 percent. But even when yield highs (lows) occurred at different times for some sovereigns relative to others, directional shifts in yield for the entire group tended to happen around the same time. Thus China’s 9/21/18 interim high at 3.71 percent and Germany’s on 10/10/18 at .58pc align with the UST yield pinnacle on 10/9/18.

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The United States Treasury 10 year note yield completed a triple bottom during this era. Recall 7/5/12’s 1.38 percent trough. Then see 7/6/16’s 1.32 percent major low and 9/3/19’s 1.43pc. September 2019’s UST depth probably commenced an extended period of rising government (as well as other) interest rates for America and its important trading partners “in general”. Widespread and determined devotion by leading central banks to a gospel of sufficient inflation (the Federal Reserve’s two percent target is a key benchmark) and adequate GDP growth (and low unemployment) encourages this. Given America’s great importance within the world economy, its large current national debt and looming massive future fiscal deficits tend to propel UST interest rates (and thus American corporate yields) upward, and thereby help to raise government yields of many of its global trading partners.

Current central bank caution (including maintaining some yield repression and quantitative easing/money printing) may inhibit a rapid and large yield ascent for the US Treasury 10 year and its companions. In addition, rate climbs for the assorted 10 year government notes will not all necessarily be the same in distance or speed terms. And fearful “flights to quality” at times can depress government debt yields of “safe haven” nations such as America and Germany. For America’s 10 year Treasury note, significant resistance exists around two percent.

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Ringing in the New Year- US and Other Government Note Trends (1-6-20)