US Treasuries are taking a back seat to risk assets.
Bond market volatility is declining. Credit spreads are tightening. And Emerging Market high-yield bonds ($EMHY) are breaking out.
Meanwhile, stocks are posting new all-time highs.
So, how high will interest rates climb over the near term?
My gut tells me not far — at least not in the coming weeks or months…
Check out the US benchmark rate finding resistance at approximately 4.33:
Last month’s high marks a logical ceiling for the US benchmark rate.
Those former highs coincide with a key retracement level based on the run-up into the October 2023 peak. Plus, the 10-year yield paused at the same level for almost a month during last year's rally. That’s not a coincidence.
If the US 10-year breaks above 4.33, volatility will hit risk assets, and energy stocks will likely assume a leadership role.
But a continued rise in US yields seems unlikely now that investors have unwound their aggressive 2024 rate cut projections.
Yet yields aren’t rolling over…
Here’s the US 10-year holding above a retracement level from the 2023 Q4 decline at approximately 4.25:
The US 10-year yield will likely cling to this psychological level for the rest of Q1.
Speculative growth names are ripping. Japanese stocks are hitting new all-time highs. And the commodity bull run is spreading to cocoa and cotton futures. (It doesn’t sound like rate-cut fodder to me.)
