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Daily Archives: August 5, 2021
10-Year Treasury Yield ‘Fair Value’ Estimate: 5 August 2021
The 10-year Treasury yield held steady at 1.19% yesterday (Aug. 4). The current rate marks the third time in recent history that the 10-year yield slipped to 1.19%, which reflects a six-month low.
10-Year Treasury Yield Fair-Value Estimate
The Capital Spectator estimates the “fair value” of the 10-year Treasury yield by using the average estimate from three models:
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- Shevlin model, based on an article by Tom Shevlin, published in The Journal of Investment Management: “A Model of Bond Value: Explaining Yields With Growth and Inflation.” The model uses two inputs to estimate the fair value of the 10-year rate: 1) gross
domestic product (GDP) and 2) inflation rate. - Frontier model, based on a research note published by Frontier Advisors: “Frontier’s Quantitative ‘Fair Value’ Bond Models.” The model uses three inputs to estimate the fair value of the 10-year rate: 1) US unemployment gap (difference between the unemployment rate and CBO’s estimate of the non-accelerating inflation rate of unemployment); 2) volatility of 10-year yield; and 3) momentum of 10-year Treasury yield.
- BB model, based on an article published by Bloomberg: “Long-end bear-steepening signaled from Treasury yield scorecard.” The model uses five inputs to estimate the fair value of the 10-year rate:
- Shevlin model, based on an article by Tom Shevlin, published in The Journal of Investment Management: “A Model of Bond Value: Explaining Yields With Growth and Inflation.” The model uses two inputs to estimate the fair value of the 10-year rate: 1) gross
* GDP growth
* year-over-year Consumer Price Index (headline)
* Federal Reserve assets as % of GDP
* Fed funds target rate
* 1-year/3-year curve to estimate Fed bias
For additional analysis on fair-value estimates of the 10-year yield, see these CapitalSpectator.com articles:
“Estimating Fair Value For The 10-Year Treasury Yield”
“Estimating Fair Value For The 10-Year Treasury Yield, Part II”
“Estimating Fair Value For The 10-Year Treasury Yield, Part III”
Macro Briefing: 5 August 2021
* US Covid-19 cases rebound to six-month high
* Federal Reserve vice chair says rate hike likely in 2023
* Are US jobless claims stuck at a permanently higher plateau?
* Global growth slipped to 4-month low in July via PMI survey data
* Global value of negative-yielding bonds rises to six-month high ($16.5 trillion)
* German factory orders rebounded more than expected in June
* ISM Services Index rebounded in July, reaching record high (since 1997)
* US firms hired substantially fewer workers than expected in July, ADP reports:
