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Fixed Income
March 3, 2021
3 mins

US Treasury yields re-price higher on improving economy

March 3, 2021
3 mins
Bruce Harris
Global Head of Fixed Income Strategy
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SUMMARY

The recent rise in yields has left fixed income investors nursing losses. The good news, though is that this re-pricing is making corporate bond yields more attractive, says Global Head of Fixed Income Strategy Bruce Harris.


  • As discussed in our recent communications (CIO Strategy Bulletin: Beware the Cash Thief and Fixed Income Strategy Bulletin: Bond Investors Confront Inflation Risk With Valuations Still High), US Treasury (UST) rates were expected to continue weakening throughout 2021 as the likelihood of a fiscal mega-stimulus being deployed increases and the economy re-opens.  Yesterday however, US Treasuries yields violently re-priced higher across the curve into our expected 2021 range, with the closely watched 10y Treasury jumping almost ~25bps intra-day to a high of 1.55% before settling back to around 1.50%. Bond volatility also spiked to the highest levels since last March, as rates are catching up to this strong growth reality.  
  • The more extreme move in Treasury yields however occurred at the shorter end of the curve around the 5y point, which experienced a ~20bps move higher. This move was in part likely a response to the futures markets moving the start date of the Fed rate hikes forward, combined with a very poor 7yr UST bond auction result.
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