In November 2018, the U.S. 10-year reached a recent high of 3.26%. As trade tensions weighed on global growth prospects and the U.S. Federal Reserve cut rates, U.S. yields fell sharply in 2019. Over the last 12-months, the U.S. 10-year has returned over 14%, its best rolling 1-year return in over seven years. However, looking into early 2020, U.S. yields may be set for a rebound.

Global growth prospects are showing signs of stabilizing as monetary policy stimulus slowly trickles through, helping counter the impact of trade tensions. As highlighted in the chart below, U.S. 10-year yields have closely mirrored global manufacturing PMIs over the course of this cycle. Should global growth continue to stabilize or even improve, U.S. 10-year yields may lift further going into 2020.

However, with global trade tensions likely to continue into 2020, a meaningful reacceleration in global growth remains unlikely. For fixed income investors, the U.S. 10-year may be able to break above 2%, but it could be very difficult for yields to go back to the highs seen in November 2018. In 2020, the hunt for yield is likely to continue.

A pickup in growth could push yields higher

Global growth versus U.S. 10-year yields

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Source: FactSet, Markit, Tullett Prebon, J.P. Morgan Asset Management.
Data are as December 2, 2019.