Death of 38-year US bond 'bull market' not yet on the cards, Macquarie says

Global growth has peaked, "but the long tail of the crisis is finally beginning to pass," analysts at Macquarie argued on Tuesday, further arguing that 10-year US Treasury yields would not "break" the 3.0% mark until the third quarter of 2018, although a breach was possible in coming days.

Somewhat ironically, and despite what it labeled as the recent "chorus of structural pessimism" among analysts around the economic outlook, the facts on the ground were in fact arguably improving, they said.

To back up their argument, they pointed to the 'flash' PMIs out in Japan and the euro area the day before, which on a tentative basis might already be pointing to signs of stabilisation.

"Indeed, absent a major trade war, we continue to expect growth to remain above average over the course of 2018, with the US remaining a locomotive as the fiscal expansion and still easy monetary conditions support activity," they said.

"It is notable that the Citi data surprise indices for both Europe and Japan have also shown early signs bottoming out – in the case of Europe at around the same level we have seen in recent mini cycles – providing further support to the idea that much of the global growth slowdown has already occurred."

Neither did they believe that an immediate break-out in yields was 'on the cards', although Friday's PCE price index data in the States was a key risk event in that regard.

Macquarie's forecast was for the 10-year US Treasury yields to see the year out from 3.3% and to rise towards 3.75% by end 2019.

Yet quickly cracking the 3.0% to 3.10% area on the 10-year US Treasury was a whole different matter, they told clients.

"However, we also feel that the 3.0-3.1% level will continue to take some time to crack, as a yield above 3.1% would in effect signal the end of the 38 year bond bull market," the analysts explained.

"This suggests that volatility in other markets is likely to remain elevated as investors attempt to assess the impact of higher yields. In particular equity investors will be looking at the bond market for guidance, despite the fact that US earnings have been very strong in Q1, and that valuations (even in the US) are now back at levels seen for much of the past couple of years."