Treasuries Hit A Fork In The Road

The story in the market is the back-up in US interest rates, a stealthy, but significant move that took a lot of folks by surprise over the last few weeks.

So what’s next?

In a note, Nomura’s George Goncalves suggest that US rates have reached a fork in the road.

At the start of the third quarter we expected long-term rates to stay in a well-defined trading range (1.4 to 1.7% on 10s), as investors re-assessed the next step for Europe and the US economy. The range was working well until it broke in a low volume world built on hope that come September everything will be sorted (see link). Although we welcome the normalization in rates, things need to improve further to keep a UST sell-off alive.

Ultimately, the fork looks like this.

image

Photo: Nomura

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