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Weekly Market Update

10-Year Yield Climbs Against Fed Policy

While the Fed cuts rates, the US 10-year yield is moving in the opposite direction. With a direct relationship to the Citi US Economic Surprise Index, which remains strong, yields reflect optimism for a "soft landing."

5 min read
Head of North American Investment Strategy & Research
Senior Investment Strategist
Research Analyst, Investment Strategy & Research
Fixed Income Portfolio Specialist
Research Analyst, Investment Strategy & Research

Since mid-September, when the Fed initially cut rates by 50 bps, US 10-year yields have gone the other way and climbed nearly 60 bps. What is causing the backing up in yields? The odds of a Trump presidency have been rising, and the rhetoric concerning tariffs intensifies, causing investors to contemplate the impact on inflation. Additionally, there is the resiliency of the recent economic data. What we have seen over the past couple of years is a direct relationship between the Citi US Economic Surprise Index and 10-year yields.

The Citi Economic Surprise Index indicates that recent economic data has generally exceeded expectations, suggesting that economic forecasts have underestimated the US economy. The index has been on an upward trend since August and the positive economic surprise is telling a story of resiliency.

Over the last few years, the US economy has defied expectations of a sharp slowdown despite concerns about high interest rates and inflationary pressures. With the index remaining in positive territory, bond yields are moving along with it, as higher growth tends to support higher rates. While there are undoubtedly a variety of potential risks, the current data suggests that the US economy remains on track towards a soft landing.

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