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Why US bond yields could fall way, way lower

Bond yields could fall lower, according to experts who say the causes can be traced to the Federal Reserve, situations abroad and anxieties related to the presidential election.

Ten-year Treasury yields have slipped slipped over the past week, and on Tuesday morning fell to 1.546 percent, the lowest level since early September.

"I think ultimately you're going to see stocks peak and continue to fall; I think you're going to see bond yields probably slip further as we get into the election cycle," Kathy Lien, managing director of FX strategy at BK Asset Management, said Monday on CNBC's "Trading Nation."

"And if there is stronger Fed rhetoric in the later part of November and December, that's when we could finally see that stronger uptick."

Now, investors await the next Fed meeting in December and are taking into consideration volatility gradually rising; the CBOE Volatility Index is up about 8 percent this month as, among other issues, Election Day draws closer.

"Overall, you're not seeing a huge amount of movement in either market since the FOMC meeting. I think it represents ambivalence toward the Fed, where everyone was expecting a lot more from Janet Yellen," Lien said, referring to last week's Fed meeting in which the central bank decided against raising short-term interest rate targets.

Ari Wald, head of technical analysis at Oppenheimer, echoes Lien's sentiment in anticipating bond yields dropping further, even while he maintains an optimistic view on equities.

"We can [see yields falling lower from current levels] and that's really been the disconnect to our bullish view on the equity market here," Wald said Monday on CNBC's "Trading Nation."

"To put on our bear cap, our one main concern is the falling trend in interest rates; we do view that as a deflationary signal," he added.

To understand why bond yields are declining, investors may want to look overseas, where Wald notes that German and Japanese 10-year yields that are actually in negative territory make Treasurys looks like a great deal.


Even a 10-year Treasury yield below 1.6 percent "could be viewed as relatively attractive for a foreign pension fund who has to deal with zero-to-negative interest rates."

But Wald says this actually could remain a decent environment for U.S.-centric investors.

"Here's the spin, though: we are seeing strength in our other indicators where we don't think the world pulls down the U.S., but we actually think the U.S. keeps the world afloat in absolute terms."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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