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In the year ahead, 2 per cent is the number to watch for the world’s benchmark borrowing rate, as the past 12 months have crushed investors’ expectations for how high yields can go.
This time last year, the Street’s projections centered on the US 10-year Treasury yield rising about half a percentage point to close out 2019 at around 3.29 per cent.
Barring anything extraordinary over this year’s final six business days, that guess will be an overshoot of more than 130 basis points.
The Fed’s startling dovish turn early this year quickly settled the debate over whether the benchmark could get back above 3 per cent.
As traders head into 2020, the question is, is there life above 2 per cent?
Not many investors seem to think so.
Two major potential catalysts for higher yields are already behind us: A decisive UK election result this month that will clear the way for Brexit, and an apparent agreement on “phase one” of a US-China trade deal.
Even with all that, the 10-year is still stuck just above 1.9 per cent.
“Global growth is elusive,” said Alexandra Wilson-Elizondo, a portfolio manager at MacKay Shields.
“It’s not like it’s going to take off just because you have somewhat of a phase-one resolution”
Looking ahead, even if the global economy is on the mend, the likelihood of the Fed keeping rates steady next year is tethering yields on short-dated Treasuries.
