The yield on the 10-year Treasury inches toward 3%--I think that's likely to set off an over-reaction in bond and stock markets

09/05/2013 3:08 pm EST


Jim Jubak

Founder and Editor,

If you’re looking for the next panicky market over-reaction moment, may I suggest keeping your eye on the yield on the 10-year U.S. Treasury?

The yield keeps creeping up toward 3% what with worries about the Federal Reserve beginning to reduce its purchases of Treasuries and mortgage-backed assets at its September 18 meeting. Today the yield is at 2.97%; a month ago it was at 2.63% and a year ago it was 1.6%.

If the yield does hit 3%, I think we’re just about guaranteed to see lots and lots of worried headlines marking the supposed milestone and speculating on how high yields can go from here.

And that would put lots and lots of pressure on the U.S. bond and stock markets, and on already reeling emerging market assets and currencies.

The likelihood, in my opinion, is that any pop to 3% would mark a temporary top for Treasury yields and that buying on the panicky reaction would be a good short to medium term trade. (Which is not to say U.S. yields can’t go higher in the longer term—just that any sustained move above 3% will require stronger U.S. economic growth than we’re seeing right now.)

Just another reason to have some cash on the sidelines as we move deeper into September and October.

Stay tuned.
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