Selling in U.S. Government Bonds Accelerates, Sending Treasury Yields Soaring

By: Montana Timpson

As uncertainty over the pace of recent economic expansion continues to unsettle financial markets, selling in U.S. government bonds is accelerating, sending Treasury yields soaring above 1.7% — the highest recorded levels since January 2020.

The Treasury Yield’s Extended Surge
The latest surge in the 10-year yield, which settled at 1.73%, extended a multi-month climb spurred by expectations for a vaccine- and government-stimulus fueled economic recovery.

The rise in yields, which move opposite to price, sent stocks falling on Thursday, and high-growth stocks and the tech sector were particularly hard hit. The tech-heavy Nasdaq Composite saw a 3% loss, while the S&P 500 dropped 1.5%.

The catalyst for last week’s yield surge stemmed in part from federal announcements following the Federal Reserve’s two-day policy meeting that came to a close on Wednesday. Upon the close, U.S. Federal Reserve Chairman Jerome Powell reassured the market that the central bank isn’t ready to dial back its bond purchases and other supportive measures. The next day, Treasury yields soared, as investors grappled with the Federal Reserve’s seeming lack of action in curtailing inflation.

Treasury Yield Indications for Professional Investors
Despite the elevated level at present, strategists say the yield is still relatively low, particularly given the expectation for explosive economic growth this year. Regardless, correlations between Treasury yields, interest rates, economic growth and inflation can present professional traders with helpful indications of investor sentiment, as connections between each macro factor are fully understood.

Interest Rates
In the United States, the Treasury yield curve is the first mover of all domestic interest rates and an influential factor in setting global rates. Interest rates on all domestic bond categories rise and fall with treasuries. Treasury yields are the primary benchmark from which all rates are derived.

Economic Growth
Strong economic growth typically leads to increased aggregate demand, which results in increased inflation if it persists over time. In turn, Treasury yields generally rise for Treasuries to find equilibrium between supply and demand.

Inflation
When inflationary pressures emerge, Treasury yields move higher as fixed-income products become less desirable. Additionally, inflationary pressures typically force central banks to raise interest rates to shrink the money supply. In inflationary environments, investors are forced to reach for greater yield to compensate for diminished purchasing power in the future.

For more professional trading insights, check out Lightspeed’s Active Trading Blog. For additional references, guides and resources, view our Trading Education Center, featuring a comprehensive glossary for professional traders, and register now for our next live webinar.

Active Trading with Lightspeed
Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account.

Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content are solely based on the users’ independent analyses taking into consideration your financial circumstances, investment objectives, and risk tolerance.

You may also be interested in...

Bank Stocks Kick Of Q3 Earnings Season With A Bang
Read More
The IPOX® Week, October 18th, 2021
Read More
4 Bad Habits That Stock Traders Should Break
Read More
Understanding the Difference Between Option Volume and Open Interest
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.

OK