Ongoing market uncertainty continues to push down indexes of riskier assets, and the shift of capital into the bond market is becoming increasingly evident. As a result, U.S. yields have dropped below 4% for the first time since the Fed changed its narrative regarding potential rate cuts. However, it’s important to note that the Federal Reserve has not yet made any clear statements suggesting that monetary policy will become less restrictive.
The moves in yields are being driven primarily by investor sentiment, and in the case of 10-year bonds, this sentiment can be a double-edged sword. The upward move toward 4.8% from September to late July was also sentiment-driven, pushing yields up by nearly 1.2 percentage points despite no clear indication from the Fed of a policy shift. Therefore, the current decline in yields, caused by a sharp sell-off in market assets, may be particularly sensitive to any change in sentiment ahead of the upcoming NFP report and Jerome Powell’s speech.
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10-year U.S. Treasury yields fall below 4%. Source: Bloomberg Finance L.P.
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