Why the outlook for Treasury yields remains uncertain

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The US Treasury Department issued its quarterly refunding statement this week. As Felix alluded to yesterday , this is where officials announce their debt issuance plans for the coming quarter. 

The Treasury will be holding auction sizes steady “for at least the next several quarters,” the latest statement read. Treasury yields, in response, slid. 10-year yields were hovering around 4.5% Friday while the 2-year rose to 4.28%. 

Normally, higher yields mean lower stocks, like we saw in 2022 when the 10-year rose to over 4% and the SP 500 ended the year almost 20% lower. 

In 2023, for most of the year, yields kept creeping up and so did US equities. It’s worth noting though that the SP 500 doubled its annual gains during the final quarter of 2023 when the 10-year yield fell 0.5%. 2024 followed roughly the same pattern. 

Okay, history lesson over. That brings us to now. There’s really no reason to think stocks can’t maintain momentum with yields in the 4%-range, but if yields move too much higher, recessionary fears come back and stocks go down. 

The outlook for Treasury yields is uncertain for a few reasons. 

First, there’s the Fed hitting pause on its interest rate-cutting cycle, for who knows how long. Plus, inflation is still sticky. Rising tensions surrounding global trade and higher tariffs on US imports (if and when enacted more broadly) could also weigh on growth, or expectations for growth at least. 

Then there’s the Treasury’s new leadership. Secretary Scott Bessent hasn’t been shy about his distaste for how former Secretary Yellen handled things, namely her choice to primarily use short-term bills for funding. 

Long story short, it’s all pretty up in the air. But when the dust settles we’ll have all the info you need. Keep an eye on your inbox.

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