Could we see 3% Treasury yields in 2 weeks?
Bill Blain said the 10-year yield will test this mark when the payrolls report is released in early September.
The dust has settled after a tumultuous week for bond investors, in which the yield on 10-year benchmark Treasurys spiked above 2.93%, a high not seen since July 2011.
The bloodletting will continue, said fixed income analysts, with some predicting 10-year yields will hit the psychologically important 3% mark within the next two weeks.
"Summer ends in tears . . . risk aversion may offer near-term respite to bonds, but not for long," Societe Generale said in a research note on Friday.
SocGen explained that the "first test" of 3% rates on 10-year notes will likely occur in early September, with the release of the government's latest payrolls report. The Federal Reserve has explicitly linked the timing of the tapering off of its stimulus measures to the unemployment rate, so a strong number could increase the prospects of an early end to quantitative easing, and vice-versa.
Tapering concerns have led a flight to cash, at the expense of equity and bond funds, and bond yields have been on a one-way ticket higher since May, when the Fed's policy minutes sparked fears the central bank would start tapering off assets purchases this year.
Outflows from U.S. bond mutual funds (such as iShares 1-3 Year Treasury Bond ETF (SHY) or DoubleLine Total Return Bond I (DBLTX)) and exchange-traded funds accelerated in August, and were the third highest on record, according to TrimTabs. A slew of recent positive economic reports has added to concerns the Fed will make its move when the jobs report is released in two weeks' time.
Bill Blain, senior fixed income broker at Mint Partners, agreed the 10-year yield will test 3% when the payrolls report is released on September 6.
"At the moment the Treasury market is range-bound -- every time it tests a top it is then supported. For it to roll through 3% will require a catalyst event . . . I think the key test will be September 6 payroll data -- if that is strong then we coast through 3% and up," Blain told CNBC.
"Next week the [bond] auctions may prove a hurdle, but probably not enough to push it past the support."
Meanwhile, Barclays revised its 10-year outlook higher on Friday, forecasting it will rise to 3.75% by the third quarter of 2014.
Despite this, Saxo Bank Chief Economist Steen Jakobsen forecast on Friday that yields could reach "new lows" instead.
"The combination of depressed participation rates and weak 'real growth', plus Obamacare and bad jobs, leads our models to predict a big reversal on the recent trends, with surprising implications for quantitative easing, and new lows in yields," Jakobsen said in a research note.
Charles Dumas, an economist at Lombard Street Research, had similar thoughts, as did Jessica Hinds at Capital Economics. Hinds said the market had now fully acclimatized to the prospect of less accommodative monetary policy, and that the 10-year yield could fall back slightly by year-end.
Dumas, meanwhile, saw weak growth in the U.S. as a catalyst for the Fed continuing quantitative easing until winter at the earliest.
"Our forecast is for Treasury yields to be easing down over the next few months," he said in a note on Friday.
"With the onset of genuine recovery -- which, subject to fiscal policy, we expect next year -- yields could then pick up again. At some stage, if recovery is durable, a powerful upswing of yields should occur, but quite possibly not within the next 12 months."
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