The U.S. 10-year yield ended May at 221 bps, about 8 bps lower, and then proceeded to test the 215 bps level on June 2nd, after the big miss in the May jobs report. With the 50-Day moving average trending lower and the weekly close of 215 bps marking a lower low (Chart 1), risk for even lower 10-year yields has increased. On the downside, 2% will be the next line of defense. On the upside, the 230-233 area has become a ceiling after an unsuccessful attempt to stay above it in May. The tight 215-230 range is likely to be broken as June could shape up to be a big month for volatility, with both political risks (the U.K. election and James Comey testimony), and policy risks (a full central bank meeting schedule) all coming to a head in the first half of June.
Greater uncertainty around politics and the lack of progress in pro-growth policies have dampened investor enthusiasm toward the Trump trade. So far this year, along with lower Treasury yields, we have seen inflation expectations retrace almost all of the post-election surge and the yield curve more than reverse its steepening move (Chart 2).