30-Year Treasury Yield Signals Shift, Ending Post-2020 Rise

US Treasury Yields: A Potential Peak and What It Means for Mortgage Rates

Back in early October, we examined the trajectory of US Government bond yields, noting a rate hovering just under 4%. Our analysis, based on Elliott Wave principles, suggested a climb beyond 5% was likely. Currently at 4.41%, that outlook remains valid – but a significant shift might potentially be brewing.

While the broader trend still points upward,indicators suggest the 30-year Treasury yield is nearing a potential reversal. A closer look at the weekly chart reveals a nearly complete five-wave impulse pattern that began during the March 2020 Covid-19 market panic, when yields hit a low of 0.71%. This larger wave structure is comprised of waves I-II-III-IV-V, with wave III itself containing five sub-waves: (1)-(2)-(3)-(4)-(5).

The current focus is on wave V, which appears to be taking the form of an “ending diagonal.” This pattern is characterized by contracting waves, and waves (1) through (4) are already established.Both waves (1) and (3) exhibit the expected three-wave structure (a-b-c) typical of an ending diagonal. If this analysis holds true, wave (5) of V could push the US 30-year yield to around 5.30%.

Reaching 5.30% would likely mark the culmination of the entire upward trend that began in 2020. according to Elliott Wave theory, such a completion would be followed by a three-wave correction, possibly erasing all of wave V and extending below its starting point. A decline to at least 3.50% is a plausible scenario.

For prospective homebuyers, this potential shift could offer a glimmer of hope. If these projections materialize, more affordable mortgage rates may become available in 2026 or 2027, providing some relief in a challenging housing market.

Original Post

What factors contributed to the initial rise in the 30-year Treasury yield following the 2020 economic downturn?

the Turning Tide in Long-Term Rates

For over three years, the 30-year Treasury yield experienced a consistent upward trajectory, beginning in the wake of the 2020 pandemic-induced economic downturn.This rise reflected expectations of economic recovery, increasing inflation, and the Federal Reserve’s tightening monetary policy. However, recent market movements suggest a important shift. the 30-year Treasury yield has begun to decline, signaling a potential end to this post-2020 climb and prompting a reassessment of the economic outlook. this article dives into the factors driving this change, its implications for investors, and what to watch for in the coming months. Key terms to understand include Treasury yields, bond market, interest rates, inflation expectations, and quantitative tightening.

Decoding the Recent Decline in 30-Year Yields

Several converging factors are contributing to the recent dip in 30-year Treasury yields. Understanding these is crucial for investors navigating the current market landscape.

Cooling Inflation Data: Recent Consumer Price Index (CPI) and Producer Price Index (PPI) reports have shown a moderation in inflation, suggesting the Federal Reserve’s aggressive rate hikes are beginning to have the desired effect. Lower inflation expectations directly translate to lower long-term bond yields.

Federal Reserve Policy Signals: While the Fed has maintained a hawkish stance, subtle shifts in interaction suggest a potential pause or even a pivot in monetary policy. Comments hinting at data dependency and acknowledging slowing economic growth have fueled speculation of a less aggressive tightening cycle.

Recession Fears: Growing concerns about a potential recession in the latter half of 2025 are driving investors towards the safety of U.S. Treasury bonds. This increased demand pushes bond prices up and yields down. The yield curve, particularly the spread between the 2-year and 10-year Treasury yields, is being closely watched as a recession indicator.

Global Economic Slowdown: Economic weakness in key global economies, such as China and Europe, is also contributing to the decline in U.S. Treasury yields.A weaker global outlook reduces demand for U.S. assets, increasing demand for the safe haven of US Treasuries.

Quantitative Tightening Impact: The Federal Reserve’s quantitative tightening (QT) programme,while still in effect,might potentially be having a diminishing impact on yields as the market adjusts. QT involves reducing the Fed’s balance sheet, which typically puts upward pressure on yields.

Implications for Investors: Stocks,Bonds,and mortgages

The shift in 30-year Treasury yields has far-reaching implications for various asset classes and financial markets.

Bond Market Rally: Falling yields generally translate to rising bond prices. Investors holding long-duration bonds (bonds with longer maturities like the 30-year) are likely to see capital gratitude. This presents an prospect for fixed income investing.

Stock Market Impact: The relationship between Treasury yields and the stock market is complex. Lower yields can be positive for stocks, as they reduce borrowing costs for companies and make equities more attractive relative to bonds.However, a decline in yields driven by recession fears can also weigh on stock market sentiment.

Mortgage Rate Sensitivity: Mortgage rates are closely tied to treasury yields, particularly the 10-year yield.A decline in Treasury yields typically leads to lower mortgage rates, potentially boosting the housing market. This is a key consideration for potential homebuyers and those looking to refinance.

* Corporate bond Spreads: The spread between corporate bond yields and Treasury yields can indicate the perceived risk of corporate debt. A narrowing spread suggests improving credit conditions,while a widening spread signals increased risk aversion.

Historical Context: Past Yield Curve Inversions and Recessions

Looking back at historical data provides valuable context for the current situation. Historically, an inverted yield curve – where short-term Treasury yields exceed long-term yields – has been a reliable predictor of recessions. While