From the desk of Willie Delwiche.
Key Takeaways:
- Bond-fueled cyclical rotation offers opportunity for better participation
- Breadth already better beyond our borders
- Commodity conflicts
Make no mistake about it, bond yields are rising. Yields on 2-year and 5-year T-Notes have surpassed their 2021 highs and are at levels not seen since their Q1 2020 COVID-related breakdown. The yield on the benchmark 10-year T-Note is above 1.50% and appears headed toward a test of the early 2021 high near 1.75% sooner rather than later.
How high yields could rise in Q4 remains an open question. A two-handle by the end of the year does not seem far-fetched. As recently as 2019, 2’s, 5’s and 10’s all had yields above 2%. With inflation pressures showing little evidence of meaningfully subsiding the path of least resistance for bond yields appears higher.
As we get ready for the final quarter of the year, we need to remember that while guesses are great, we don’t want to get ahead of what is actually happening. Evidence > Assumptions.
