U.S. 10-year Treasury yield likely to drift lower going forward, stay consistent with US fundamentals: Scotiabank

The United States’ 10-year Treasury yield is expected to drift lower in general going forward, staying consistent with US fundamentals, according to the latest research report from Scotiabank.

The recent US stock selloff sparked risk aversion that has pulled the 10-year UST yield markedly lower. As we know, a stock market retreat if it deepens would noticeably curtail personal spending and economic growth, known as the wealth effect.

US Democrats winning back the House will dim chances for major stimulus initiative, eliminate the potential for more tax cuts and lower the nation’s future debt deficit. It is expected to drag down US economic growth in the year of 2019.

Further, a wider yield spread arising from a lower 10-year UST yield is expected to revive risk appetite in the coming sessions and prop up EM Asian currencies once again, although it could be temporary, the report added.

Top White House economic adviser Larry Kudlow said in an interview with Fox Business Network Tuesday that President Donald Trump is trying to "inject a note of optimism" into trade talks with China ahead of the planned meeting with Chinese President Xi Jinping.

Meanwhile, the US stock rout will raise the chance to deescalate US-China trade tensions at the upcoming Trump-Xi Summit set for December 1, although the Office of the USTR on Tuesday released a detailed 53-page report that accused China of continuing a state-backed campaign of intellectual property and technology theft.