How Much Higher Can Interest Rates Rise?

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May 10, 2017 12:52pm NYSE:IEF


From Bryce Coward, CFA: From the middle of April through yesterday, 10-year treasury rates rose from 2.17% to 2.40%, prompting the obvious question of how high will they rise.

The interesting thing about the recent slight backup in rates is that it has occurred within the context of slowing economic data. Econ data as measured by the Citi Economic Surprise Index for both the United States and Developed Markets peaked in March and has since fallen considerably. The slowdown in economic surprises would suggest rates have little room to move higher, unless or until economic data improves from current expectations.

If, on the other hand economic data continues to disappoint or even remains the same, the relationship between the Citi Economic Surprise Index for the United States and 10-year rates (first chart) would suggest ample downside for rates.

The iShares Barclays 7-10 Year Treasury Bond Fund (NYSE:IEF) was trading at $105.72 per share on Wednesday afternoon, up $0.11 (+0.10%). Year-to-date, IEF has gained 0.86%, versus a 7.24% rise in the benchmark S&P 500 index during the same period.

IEF currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #16 of 27 ETFs in the Government Bonds ETFs category.

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