Is a 5% US 10-year Bond Yield Inevitable?
Bryan Taylor, Chief Economist, Global Financial Data
We all know that October is often the turnaround month for stocks. Two of the most famous stock market crashes in history occurred in October 1929 and in October 1987. The stock market has also hit bottoms in October 1914 during World War I, in October 1957 when Sputnik was launched, in October 1966 during the Vietnam War, in October 1974 during the Energy Crisis, in October 1990 during the Iraq War, in October 2002 during the Financial Crisis and in October 2022 after the war in Ukraine began. Although September is the worst performing month for stocks, the market often hits bottom in October and begins the best six months of the year.
Figure 1. United States 10-year Bond Yield, 2013 to 2023
It appears that October is now becoming an important month for bonds as well. As Figure 1 shows, bonds hit their highest levels for the year in both 2022 and in 2023. Bond yields rose in October 2021, and bond yields peaked in October 2018 before they began their long decline into 2020. If you look at the years before 2018, October was not a month when yields peaked. What happened?
It should be remembered that bond yields were in long-term decline between 1981 and 2020, falling from 15.84% in 1981 to 0.50% in 2020. Since 2020, bond yields have been rising, and have hit peaks in each of the past three years. Although this implies that rates may moderate for the rest of 2023, there is no guarantee that bond yields will not continue to rise. In fact, it seems likely that 10-year bond yields will hit 5% at some point soon.
We may not be able to tell you where bond yields will be in October 2024, but a 5% handle on the 10-year bond seems likely in the near future.