US 10-year Treasury yields hit fresh multi-week lows under 1.45%

• US 10-year Treasury yields hit fresh multi-week lows under 1.45% on Tuesday.
• Recent Fed news/commentary has had dovish implications and could be weighing on yields.

US 10-year Treasury yields hit fresh multi-week lows on Tuesday after sliding under the 200-day moving average (DMA) at 1.449% and last week’s low at 1.436%. Yields have risen a touch from session lows at 1.431%, which was their lowest since late September, and are now back in the 1.45% region. As things stand, 10-year yields are down by just under 5bps on the day, having started the session close to 1.50%.

The drop in US 10-year yields comes amid a broader bull-flattening move being seen across the US yield curve; 2-year yields are down around 3bps to around 0.42% and 30-year yields are down nearly 6bps to just above 1.85%. The drop in yields is driven by a further decline in US real yields, rather than a move in inflation expectations. For reference, 10-year TIPs yields are down over 5bps on the day to just under -1.15%, leaving them only a few bps above the record lows close to -1.20%, while 30-year TIPs yields are down by a similar margin to under -0.55%. Meanwhile, 10 and 30-year breakeven inflation expectations (the nominal minus the real yield) are flat in the respective 2.60% and 2.40% regions.

Dovish vibes drive yields down

US yields saw a sharp drop towards the end of last week in tandem with global peers in wake of the dovish tilt to the Fed and BoE rate decisions, as well as dovish commentary from key ECB policymakers and the RBA. In wake of last week’s central bank action, STIR markets have broadly been paring back on recent hawkish bets, which has weighed on short-end yields and longer-term real yields (given inflation expectations were pushed higher in anticipation of more dovish central banks). Tuesday’s price action suggests this recent trend of dovish repricing has room yet to run.

Recent Fed commentary/news has had dovish implications; Fed Vice Chair Richard Clardia said on Monday that he saw the conditions for a rate hike being met at the end of 2022 (versus STIR market pricing for hikes starting in September). Moreover, it looks like dovish-leaning Fed Governor Lael Brainard is in with a good shot of becoming the next Fed Chair. Market pricing for rate hikes as soon as September 2022 looks vulnerable to be pared back even further, though Wednesday’s US Consumer Price Inflation report could throw a spanner in the works if it shows inflationary pressures continuing to build.