The 10-year Treasury note’s yield is headed for a fifth straight week of minimal change, rivaling its longest stretch of inertia in the past two decades.
Since 2006, the median weekly range for 10-year yields has been 16 basis points. For the past five weeks, it’s been less than 10 basis points, the longest comparable stretch since 2020.
The trend — a function primarily of expected stability in US monetary policy — is stoking anxiety among bond-market investors because previous instances of constricted yield ranges have been followed by selloffs.
The 10-year note’s yield range of between 4.1% to 4.2% since mid-December has survived risk events including the December employment data, the US Justice Department’s actions against Fed Chair Jerome Powell and the prospect of American military action in Iran, Ian Lyngen, interest-rate strategist at BMO Capital Markets, observed in a report.
Benchmark yields held at 4.17% in early London trading on Friday.
“Investors have been left to ponder what would be required to push 10-year yields to 4.25% or 4.05%,” and “we’re reminded that historically when such a narrow range finally fails, it tends to be a bond-bearish event,” Lyngen wrote.
In September and October 2020, when 10-year yields were between 0.64% and 0.8% for a six-week stretch, they went on to more than double over the next four months amid the Covid vaccine rollout that promised economic recovery and as a federal infrastructure spending plan took shape. Those low levels for the 10-year yield rendered small changes more consequential than they are now.
What Bloomberg’s Strategists Say...
“I totted up the range for the 10-year yield over the last six weeks, and the results are a little sobering. The high closing yield has been 4.19% and the low was been 4.11%. That paltry range could’ve (and perhaps has) brought a bond operator to tears. Going back to 1962, that’s in the bottom 3.5% of all six-week yield ranges.”
— Cameron Crise, Macro strategist
Other ways of measuring low volatility in the Treasury market include the 10-year note’s rolling one-month range, which at eight basis points is in the 99th percentile of readings since 2000. They also include low prices for options on interest-rate futures.
“Swings in oil, stocks and precious metals are fierce, yet interest rate futures are on lock-down,” Alex Manzara, a derivatives broker at R.J. O’Brien & Associates, wrote to customers on Thursday.
In 2023, when the Fed was in the midst of raising rates, a straddle on the short-term interest-rate futures contract closest to a year from expiration was priced for a range of about 100 basis points. A comparable one prices in a range about half as large.
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