Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

10 Year Treasury Yield: Downside Bias Lingers Despite Hot CPI Report

Published 03/13/2024, 08:23 AM

The US 10-year Treasury yield continues to trade well above a ‘fair value’ estimate, based on the average of three models maintained by

The market premium continues to suggest that the benchmark rate’s upside potential is constrained, but at the same time, recent history suggests a relatively quick decline toward fair value still faces long odds, arguably due to behavioral and other factors.

Yesterday’s US consumer price inflation data for February dealt another blow for expecting the 10-year yield to slide. CPI numbers posted mixed results and traders sold bonds, which lifted the benchmark rate to 4.16%, a one-week high for Mar. 12.

US 10-Year Treasury Yield-Daily Chart

Nonetheless, the 10-year yield continues to trade in a range relative to the past four months–and well below the previous peak of ~5%. From a technical perspective, the recent drop in the 10-year rate’s 50-day moving average below its 200-day counterpart implies that a downside bias still prevails.

Today’s revised average fair value estimate for the 10-year yield is 3.09% for February (red line in the chart below), virtually unchanged from the previous month.10-Year Yield vs Avg. of 3 Fair Value Estimates

Reviewing the difference in the average fair value vs. the market rate continues to reflect a substantial premium in favor of the crowd’s estimate. The current differential is 112 basis points. That’s a hefty market premium, although it’s fallen from the cyclical peak of 159 basis points from October 2023.

10-Year Yield less Avg. Fair Value Estimate

History shows that a market premium at current levels is rare but not unprecedented. What would be surprising is if the current market premium persists and rebounds.

What would drive such a trend?

Inflation remaining higher for longer is on the short list of factors.

A reasonable takeaway from yesterday’s CPI report suggests that disinflation continues, albeit slowly. Focusing on core CPI, which is arguably a more reliable measure of the trend vs. headline CPI, indicates that inflation pressure eased to 3.8% for the year-over-year rate through February, the lowest in nearly three years.

Meanwhile,’s revised forecast for core CPI’s one-year trend (based on a set of econometric models) anticipates another dip in inflation for March.Core CPI 1-Year % Changes

The market premium for the 10-year rate, in short, still looks a bit excessive. There’s a case for arguing that the market premium reflects uncertainty about the near-term path of inflation.

But short of a burst of reflation in the months, which looks unlikely, the main takeaway in the analysis above still points to a relatively flat to lower 10-year yield, aided by sluggish but ongoing disinflation.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.