US 10y – A Comparison with 2006

Bloomberg ran a story today highlighting that the current monthly range in UST 10yr yields was the smallest in a decade. Volatility contractions lead to volatility explosions, resulting in violent moves which can often be the start of larger trends – especially when we’re looking on a multi week basis.

The chart below shows an overlay of the current 10yr yield, with the 10yr yield back at the beginning of 2006. I lined up the low bases – which preceded the volatility contraction in both periods.

White line – current 10y yield

Yellow line – 10y yield at beginning of 2006

Janet Yellen is giving a speech tomorrow at the annual Jackson Hole symposium, which could be the catalyst to break us out of the tight range we’re in. It’s true we could be a break to the downside too if she reinforces her dovishness.

Perusing through the news reports in January 2006, a lot of what was written could easily be copy-and-pasted to today’s articles. The economy was chugging along, however some investors didn’t believe it and didn’t believe the Fed would hike – they were even discussing whether there would be one or two hikes that year!