Here's a note from Bank of America yesterday:
Softer than expected April payrolls (175K) and April CPI (core: dropped to 3.6% YOY, 0.3% MOM) pulled forward first Fed rate cut from November to September. The 10y UST yield has dropped from a peak of 4.7% on 4/25/24 to 4.35% today.. The Citi economic surprise index has rolled over meaningfully in recent weeks, as economic data has shown clear signs of softening. At -21.6, the economic surprise index is close to the most negative reading since January 2023. We think the softening data is the long-awaited response to tight monetary policy of the past few years and do not think it is an anomaly. The soft-landing scenario is unfolding. A large divergence between the Citi surprise index and 10y UST yield has emerged, suggesting downside potential on the 10y UST yield. Based both on this divergence and on technical analysis, we think a decline from 4.35% to the 3.25% area in the next 6-12 months is a good possibility - and likely non-consensus. We note that the baseline BofA rate forecast is for a 4.25% 10y UST yield at the end of both 2024 and 2025, suggesting a more modest duration overweight.
A scenario like this would unwind some of the recent strength in the US dollar, particularly against the yen and Swiss franc. But how far that can run will depend on the severity of the slowdown.
US 10 year yields, daily