Interpreting The Drop In 10-Year Yields

Barron’s – Byron Wien: The Scary Signal of the Bond Market
The surprising drop in 10-year Treasury yield speaks volumes about challenges of a changing economy.
At the beginning of the year, most market strategists were in agreement that interest rates were going to rise in 2017. The reasons varied: some saw inflation climbing, pushing yields higher; others worried about bigger budget deficits; a few blamed the Federal Reserve, which was thought to be planning to raise short-term interest rates two or three times and shrink its balance sheet. Whatever the reason, interest rates were expected to head higher, so seeing the 10-year U.S. Treasury yield here at 2.3% is a surprise. To many pessimists on the economic outlook, the drop in yields on the 10-year from 2.6% is a sure sign that the economy is weakening. After all, this expansion is almost eight years old and it is reasonable to expect a slowdown or even a recession. The disappointing employment report for March showing only 98,000 jobs were created may have been the first sign of trouble. Others believe the uneven start of the Trump administration in putting its pro-growth agenda to work is a reason to buy bonds and avoid the risks of increased equity exposure.