As of late August 2025, U.S. 10-year Treasury yields are trading near 4.21%. While the prevailing market narrative assumes inflation is easing and the Federal Reserve remains on track to begin cutting rates in 2026, Deutsche Bank has outlined a sharply contrasting view. The bank argues that the U.S. economy is entering a stagflationary phase, driven not by excess demand but by persistent supply-side constraints such as rising tariffs, reduced immigration, and ongoing pressures in wages and housing. These structural factors, Deutsche Bank contends, are contributing to a more durable inflation backdrop than the market currently anticipates. As a result, they estimate the neutral real interest rate to be closer to 2% rather than the conventional assumption of 1%, implying that policy rates may remain elevated in the 4 to 4.5% range for an extended period. In line with this outlook, Deutsche Bank has taken a short position in long-dated U.S. Treasuries, arguing that interest rate risk is being materially mispriced by the market. In todayâs review, we will highlight key elements of this thesis and examine the 10-year yield and the US Dollar through a point and figure lens, identifying potential support and resistance levels that could become relevant should this scenario begin to unfold. This framework may offer tactical insights for SIA practitioners as they assess the evolving macro landscape.
Political Shock Hits Yields and Pressures Deutsche Bankâs Positioning
Recent months have seen significant volatility across the Treasury curve as markets absorb shifting expectations around inflation, monetary policy, and now political interference. Year to date, the 5-year yield has declined by approximately 15.4%, the 10-year is down 7.3%, while the 30-year has climbed 2.7%. Much of the recent movement has been driven by political events, most notably the surprise removal of Federal Reserve Governor Lisa Cook by President Trump. This decision sparked speculation about increased political influence over Fed policy, with implications for lower rates and a weaker dollar. The market reaction was immediate: intermediate yields fell sharply, with the 5-year down nearly 2.8% and the 10-year off 1.4% in a single week, while the long end remained comparatively stable. European markets reacted even more dramatically, with euro-area bank stocks posting a one-day decline and Deutsche Bank shares falling by around 5%. This volatility did not, however, break key technical support levels. On the 5% scaled point and figure chart, the yield has so far held near 4.21%, having previously reached as high as 4.95%. Importantly, the move through 4.068% may have marked a very long term breakout above resistance dating back to 2009, highlighting the structural shift in the yield environment. As such, weâve marked the past three years of yield action as a potential breakout phase, lending technical support to Deutsche Bankâs higher-for-longer thesis. A decisive move higher toward 4.944% would reinforce that view, while a breakdown below the support line (3.874%) weâve drawn in black could undermine it. In the near term, the SIA SMAX score â a measure of relative strength against other asset classes, sits at just 2 out of 10, suggesting that for now, the political narrative may be overriding the macro one, with markets temporarily aligning more closely to Mr. Trumpâs policy intervention than to the structural arguments made by Deutsche Bank.
Dollar Recovery Faces Technical Headwinds and Policy Uncertainty
The U.S. dollar has also reflected these shifting dynamics. After underperforming most major currencies for much of the year amid narrowing rate differentials and fiscal concerns, the dollar has shown a modest rebound over the past week. Deutsche Bank suggests the dollarâs trajectory is now caught between two competing forces. On one hand, structurally higher U.S. yields could underpin the currency, particularly if global markets become volatile. On the other, rising U.S. debt issuance and longer-term credibility concerns may weigh on the dollar. This interplay creates a less predictable currency environment where traditional relationships could weaken. Currency exposures might also need to be reviewed in light of the growing divergence between the dollarâs short-term movements and its longer-term structural risks. While Deutsche Bankâs outlook has not yet been fully validated by the market, recent developments suggest it warrants close monitoring. Given the global scope of this interplay, we are highlighting the U.S. Dollar Index Continuous Contract as a proxy for the dollarâs performance against a broad basket of currencies. Note the overlaid clipping, which shows not only how weak the dollar has been in 2025, but also the recent reversal in green over the past month. Support and resistance levels have been added, including a challenging range of possible resistance between $100.62 and $102.64, while longer-term support levels are drawn at $93.85 (dating back to 1996â1998) and $89.30 from 2005. Here, too, we observe a SIA SMAX score of 2/10, again suggesting, at least from a technical perspective, that the dollar remains relatively weak against the SIA basket of alternative asset classes.
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