US Long-Term Yields Surge Higher

As at 4 August 2023

Over the several months, long-term bond yields in the US have moved steadily higher, with the 10-year approaching a 15-year high of 4.2% at the time of writing. This last marks a complete reversal of the decline in long-term interest rates seen after the collapse of Silicon Valley Bank in March of this year, which sent the 10-year below 3.5%. Interestingly, unlike the surge in interest rates seen during 2022, these recent moves do not seem to be driven primarily by inflation data, which has come in lower than expected in the past several releases. Moreover, whilst short-term yields tended move more than their long-term counterparts last year, this has now reversed. 


Title: US 10-year Yield, Cumulative Percentage Point Change¹

Source: Fulcrum Asset Management


Through our internal modelling of asset prices, we aim to give a structural economic interpretation to developments in financial markets. This involves decomposing price movements into contributions from fundamental economic shocks, which are mutually independent of one another and have a strong basis in economic theory. Using a Bayesian Structural Vector Auto-Regression (SVAR) with sign and narrative restrictions, the model identifies 8 separate shocks: Monetary Policy (MP), Unconventional Monetary Policy (UMP), risk sentiment (RISK), oil supply (OIL), Domestic Demand (DD), Global Demand (GD), aggregate supply (SUPPLY) and an unknown shock (RESIDUAL).  The chart shows the contribution of each of these shocks to the cumulative change in 10-year yields since the 5th of May. We see that the largest single contributor has been the UMP shock, which is identified as a shock that pushes interest rates upwards and steepens the yield curve. Notably, the contribution from this shock saw a significant increase in the last week alone. However, a significant portion of the move has been led by improving economic sentiment (signified by the blue and dark blue bars), which is consistent with the recent strength in US economic activity. Moreover, risk-on market tone has also pushed yields higher, as shown by the red bar.

As we have shown, a large part of the recent moves seems to be led by ‘true’ policy tightening, which, all else equal, should put pressure on broader asset prices. However, a not inconsiderable amount of the rise seems to have been led by improving economic and market fundamentals, which, all else equal, should provide a boost to valuations across markets. As such, it is important to bear in mind not just the movements in long-term interest rates, but also the causes of these, for, as we have seen, different causes may have very different implications for the wider investment universe.


  1. The coloured bars show the contribution from the mentioned economic shocks, whereas the dashed black line shows the model’s expectation in the absence of structural shocks.


This content is provided for informational purposes and is directed at professional as defined in Directive 2011/61/EU (AIFMD) and Directive 2014/65/EU (MiFID II) Annex II Section I or Section II or an investor with an equivalent status as defined by your local jurisdiction. Fulcrum Asset Management LLP (“Fulcrum”) does not produce independent Investment Research and any content disseminated is not prepared in accordance with legal requirements designed to promote the independence of investment research and as such should be deemed as marketing communications.  This document is also considered to be a minor non-monetary (‘MNMB’) benefit under Directive 2014/65/EU on Markets in Financial Instruments Directive (‘MiFID II’) which transposed into UK domestic law under the Financial Services and Markets Act 2000 (as amended). Fulcrum defines MNMBs as documentation relating to a financial instrument or an investment service which is generic in nature and may be simultaneously made available to any investment firm wishing to receive it or to the general public. The following information may have been disseminated in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service provided by Fulcrum.Any views and opinions expressed are for informational and/or similarly educational purposes only and are a reflection of the author’s best judgment, based upon information available at the time obtained from sources believed to be reliable and providing information in good faith, but no responsibility is accepted for any errors or omissions. Charts and graphs provided herein are for illustrative purposes only. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Some of the statements may be forward-looking statements or statements of future expectations based on the currently available information. Accordingly, such statements are subject to risks and uncertainties. For example, factors such as the development of macroeconomic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. In no case whatsoever will Fulcrum be liable to anyone for any decision made or action taken in conjunction with the information and/or statements in this press release or for any related damages.  Reproduction of this material in whole or in part is strictly prohibited without prior written permission of Fulcrum Copyright © Fulcrum Asset Management LLP 2024. All rights reserved.

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