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U.S. Treasury Yields Hit Multi-Year High: 4 Finance Picks

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On Oct 3, the 10-year Treasury note yield hit its highest since 2011, while the 30-year bond yield trades at its highest since 2014.

The 10-year Treasury note gained 10.3 basis points to 3.161%, its highest since July 2011, marking its largest one-day yield rise since Mar 1, 2018. The 30-year bond yield marched north by 11.3 basis points to 3.320%, its highest since October 2014, staging its largest daily climb since Nov 9, 2016.

This northbound movement of treasury yields, which are inversely related to bond prices, are mainly driven by the U.S economy’s extraordinary growth, validated by strong numbers from the recently released manufacturing and service sector as well as robust jobs data from ADP.

Strong ADP Employment Figures

According to data released Wednesday by the ADP Research Institute, businesses hiring was maximum in seven months in September, pointing to the fact that employment gains remained strong amid a tight job market. Per the report, private sector employment increased sequentially by 230,000 jobs in September, beating the economists’ estimate of 184,000 growth. September’s job growth consisted of 46,000 additions in the manufacturing and 184,000 in the service category.

Also, the employment figure for August was also revised upward to 168,000 compared with the original reading of 163,000.

Per Moody’s Analytics the employment market continues to show strength and if the current pace of job creation continues, unemployment will fall to the low 3%s by next time this year.

Increase in ISM Manufacturing and Service Activity

Per the latest report from the Institute for Supply Management (ISM), its manufacturing index, for the month of September, increased to 59.8%, in line with the consensus estimate. Although the reading came in lower than 61.3% in August, a level above 50% implies that manufacturing is expanding. The increase marked a consecutive gain for 113 months.

Of the 18 manufacturing industries that were surveyed, 15 reported growth, which showed that the growth was broad based.

On the other hand, service activity which is represented by economic activity in the non-manufacturing sector, grew in September for the 104th consecutive month, per the latest Non-Manufacturing ISM (NMI) report on business.

The NMI came in at 61.6%, which is 310 basis points higher than the August reading of 58.5%. This represents continued growth in the non-manufacturing sector at a faster rate and is an all-time high for the NMI since the inception of the composite index in 2008. The report showed that the overall economy is growing at a fast pace for 109 consecutive months.

Treasury Yields to Stay Elevated

Given the optimism surrounding the U.S. economy, more money should move from bonds to stock markets, thus keeping treasury yields high.

Also, comments from Fed chairman Jerome Powell that he was “very happy” with the “remarkably positive” U.S. economy, and his prediction that the current expansion could continue for quite some time worked in favor of the treasury yields. Given that the economy is on a growth momentum with more rate hikes due going forward, the most predicted course for the treasury yields is to go up.

Increase in treasury yields is good for finance sector stocks such as banks and insurance companies. While banks gain from borrowing low and lending at a high rates that increase their income spread, insurance companies, particularly life insurers gain from high yields on their investment portfolio, which significantly invested in bonds, because of the conservative investment mandates that bind them.

4 Top Picks

First Bancorp (FBNC - Free Report) , with a Zacks Rank #2 (Buy), is a Savings & Loan institution established in Puerto Rico. The company provides financial services for retail, commercial and institutional clients. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has expected earnings growth of 63.2% for current year compared with the industry growth of 31.5%. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 30 days.

National Bank Holdings Corp. (NBHC - Free Report) , with a Zacks Rank #2, is a bank holding company operating full-service banking centers, with the majority of those banking centers located in Colorado and the greater Kansas City region.

The company has expected earnings growth of 69.8% for current year, compared with the industry growth of 31.5%. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

Torchmark Corp. (TMK - Free Report)   sporting a Zacks Rank #2  specializes in life and supplemental health insurance for middle-income Americans, marketed through multiple distribution channels including direct response and exclusive and independent insurance agencies.

The company has expected earnings growth of 25.3% for current year compared with the industry’s growth of 17.5%. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 90 days.

Voya Financial, Inc. (VOYA - Free Report) , which carries a Zacks Rank #2, is a retirement, investment and insurance company. It operates its principal businesses through three business lines: Retirement Solutions, Investment Management and Insurance Solutions.

The company has expected earnings growth of 42.2% for current year compared with the industry’s growth of 17.5%. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 60 days.

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