“Tertiam Qui Ipsorum Lingua Celtae”
As U.S. Treasury yields have remained at historically-low levels, it is important to consider whether the tools used to predict yields have changed. Using historical benchmarks to perform analysis on yields may be misleading, given the permanent shift in the relationship between asset classes since the past recession. This shift can be attributed to changes in the expected pace of economic growth and inflation, future tax changes, and changes in the balance of and demand for Treasury debt.
When performing analysis on the yield curve, it may be more useful to look at the direction of change rather than the yield levels compared to historical norms. In addition, looking at the pattern of yield movements in other countries (specifically, the G7 countries) may be a useful tool in understanding movements in the U.S. Treasury yields. In fact, the two-way relationship between global yields and the U.S. Treasury yields implies that changes in U.S. Treasury yields can also have predictive power over global yields.
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