Market observers have expressed some concerns about the elevated level of US risk-free rates, that is, the 10-year treasury yield. For most of the past three years, the inversion between the 2-year, 10-year and 30 year treasury yields spooked markets from time to time, as they indicated some sort of a hard landing.
Nonetheless, the US markets continued to make new highs this year. Now though, the 30-year treasury yield is above the 10-year treasury yield which is coinciding with the level of the 5-year treasury yield. It appears increasingly likely from a technical chart pattern perspective that the 10-year treasury yield and 2-year treasury yield have both encountered resistance, and may have difficulty moving much higher from their recent levels of 4.56% (for the 10-year) and 4.95% for the 2-year.
Market watchers are anticiapting a cut in the Federal Funds Rate (FFR) in the third and fourth quarters. This is despite the latest Federal Open Market Committee minutes drilling home the message of the Fed’s patience that rates may stay elevated for longer until it has gained greater confidence that inflation is moving sustainably towards the 2% objective.
“Our view remains unchanged that the Fed will keep its current FFR steady at 5.25-5.50% and maintain this terminal FFR level for longer beyond June-2024 where we factor in 50 bps of rate cuts for 2024 (i.e. two 25-bps cuts, one each in Sep 2024 and and Dec 2024),” says UOB Global Economics and Market Research in a note titled Central Bank Watch.
See also: Straits Times Index shows signs of decoupling from the US by outperforming
