Chart of the Month: U.S. 10-Year Treasury Yields Move Inline with Deteriorating Fundamentals
Source: Federal Reserve Bank of St. Louis, Investing.com
A dominant theme for financial markets in 2019 has been the sharp decline in global bond yields, particularly here in the U.S. After hitting a high of 3.25% last October, the 10-year Treasury yield now stands at just 1.64%. Some of the driving factors behind the massive bond rally this year have been rising trade tensions, policy uncertainty and concerns about slowing global growth. While the U.S. economy has been relatively strong relative to our trading partners, recent data suggests it is not immune to these global headwinds. In September, the U.S. manufacturing purchasing manager index (PMI) from the Institute for Supply Management tumbled to 47.8, its lowest since June 2009. Typically, any reading above 50 indicates growth or expansion, whereas a reading below 50 signals a contraction. Market pundits often pay close attention to this indicator as it provides valuable, real-time information on the health of the U.S. economy. While manufacturing activity is not the key driver of U.S. economic growth, a strong relationship between the direction of U.S. bond yields and this index still exists. As depicted in the chart above, the sharp decline in U.S. interest rates this year has coincided with the deteriorating economic outlook.
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