Driven by the lower-than-expected July CPI report, there has been a growing consensus that we have seen the peak in yields for the current cycle. While the 10-Year Yield has had a hard time breaking through resistance in the near term, zooming out shows us that the slow reversal of a four-decade trend is continuing to play out. At the same time, a broader measure of the fixed income market remains below a key resistance level.

The 10-Year Yield (Short-Term)

In the near term, the 10-Year Yield is having a difficult time breaking through resistance at the 3% level. With some investors open to the idea of a dovish pivot by the Federal Reserve, there is some expectation that rates have peaked for the current cycle. This view makes sense with the 10-Year below resistance, but the short-term is only part of the story.

The 10-Year Yield (Long-Term)

We often find value in zooming out. The trend in the 10-Year Yield from the early 1980s until 2020 was clearly down. However, the rally from the 2020 lows has seen the 40-year downtrend line broken to the upside. Despite the short-term pullback in yields, the 10-year remains above this falling trend line. While the reversal from the 2020 lows has been dramatic, it is not likely sustainable. A four-decade trend is not likely to stop and reverse on a dime. The process will take time, but if the Yield holds above the broken trend line, the path of least resistance is likely to the upside in the long term.

A Broader Look at Bonds

While much of the focus in the fixed income space centers on the treasury market, the asset class is much broader than that. The iShares Core U.S. Aggregate Bond ETF (AGG) gives investors a wider look at the space. A strong rebound in price (lower yields) since the June low has met a key long-term level which has been both support and resistance since 2004. Failure to move above this level strengthens the case for lower prices (higher yields).

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