The Wall Street Journal reports,"the yield on the 10-year Treasury tumbled to its lowest level since November on Monday, and is down 0.4 percentage points this year. That wasn’t supposed to happen''.
"Last year, the Federal Reserve announced that it would begin trimming its $85 billion a month bond purchases, and rates on the 10-year bond moved up, as was expected. Tighter Fed policy and an improving economy should make bonds less attractive, leading to lower prices and higher yields. Economists in the January forecasting survey expected the 10-year yield to rise to 3.24% by the end of June. It was at 2.57% Monday".
"The move higher for yields only lasted for two weeks. At the start of the year, worries began to emerge about global growth. A selloff in emerging markets accelerated last month, driving investors back into the perceived safe haven of the U.S. bond market. And then yesterday a disappointing manufacturing report raised concerns about the strength of the domestic economy, further depressing yields".
"So where do we go from here? There are multiple scenarios. It all depends on the global economy and the Fed. If the 2014 selloff turns out to be a passing storm, it’s likely that yields will continue to move up as the Fed continues to taper its purchases and tighten policy. Markets have recovered a bit today, raising hopes that this scenario will play out. But if there is a deeper weakness and China and the U.S. are faltering, all bets are off on where markets will go and how the Fed might react to it".
