Today’s 10 year Treasury actually dropped to 1.28% as the 2nd half of 2021 gets underway. Many industry analysts predicted a 2.00% 10 year Treasury by year end 2021, spurred by robust economic growth coming out of the pandemic. However, the 10 year has been dropping in recent weeks, while very short term Treasury yields are rising slightly. This flattening of the curve usually signals lower growth expectations. The dip in yields may be a perfect storm of multiple factors; (1) Technical short covering of traders covering “bad bets” on treasury yields spiking; (2) Realization that the recovery may be uneven, an estimated 80% of all the stimulus has been spent and the effects may be dwindling; (3) Employment – last month’s new jobs number of 850,000 new hires is impressive, but it will take over a year at that rate to reach pre-pandemic job levels, traders feel the Fed will keep priming the pump until that goal is within sight, even at the risk of running “hot” inflation; (4) Relative value trade, the 10 year German Bund dropped to negative 0.30% after almost breaking above zero in recent weeks, so the US 10 year T at 1.30% is a good alternative.
What are we telling borrowers? Today is a great time to lock in 10 year fixed rates. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners