As the 10-year Treasury yield creeps higher, many are asking just how far yields can go before really hurting the recovery.
Recently Jim O’Neill even went so far as to say it would “not be a stretch” to see 5% yields on the 10-year soon. Given the current yield, that would mean a big bond crash.
And when we look at the 10-year in its broader historical context, we see that O’Neill might not be off base.
“What is clear in looking at this chart, is that the 10yr has traded very close to its 50 day moving average back to 1790,” says Ralph Dillon of Global Financial Data. “And when you look at it from a historical perspective and not under the microscope, it may lead you to believe that we may see yields creep back up closer to its 50 day moving average as it has over the last 225 years.”
So if you believe in the power of mean reversion, then it’s not unreasonable to expect yields to head back up toward 4%.
Here’s the chart via Global Financial Data:
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