Publish Date: 
Wednesday, December 14, 2016 – 12:20:00 PM MST

If you learned to play pool, you learned that the angle the ball hits the rail is the same angle it leaves the rail (the angle of incidence = the angle of refraction). Despite financial markets being about as far away from physics as you can get, there is a hint of this in in the Treasury market. We’ve identified 14 major yield back-ups (outside of Fed raising periods) back to 1990 (28 years) in the charts below. There is certainly variation, but they take on the shape of a pool ball bouncing off of a rail. In other words, interest rates come down nearly as fast as they went up.

Given the lack of fundamentals to justify this move and the length of this expansion (7.5 years, see past writing), we think this yield back-up will play out similarly as in the past. Of course, we cannot deem current yields to be the top of this move higher in interest rates, but we do think that, if not, it is close.