Are Treasury Yields Rising TOO Fast?

By Anthony B. Sanders

MOVE And Tyvix Spike (Do The Fed Tighten Up?)

Bridgewater Founder Ray Dalio said back in January 2018 that “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981.” 

Well, we are still in a higher bond duration section of the Price/Yield curve where further increases in yield shifts can clobber Treasury prices.

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Like the recent decline in 10-year Treasury Note prices.

Continue reading Are Treasury Yields Rising TOO Fast?

10-Yr US Treasury Notes Net Non-Commercial Futures Positions Hit All-time Negative

By Anthony B. Sanders

10Y-2Y Slope Flattens To Lowest Since 2007

The 10-Yr US Treasury Notes Net Non-Commercial Futures Positions just hit the all-time negative.

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And the 10Y-2Y Treasury yield curve slope just flattened to the lowest level since 2007.

Continue reading 10-Yr US Treasury Notes Net Non-Commercial Futures Positions Hit All-time Negative

U.S. Set To Sell $26 Billion of 2028 Notes Wednesday

By Anthony B. Sanders

The Largest Auction Of 10-year Treasuries Ever!

The U.S. is set to sell $26 billion of 2028 notes Wednesday, the largest auction of 10-year Treasuries ever and eclipsing the previous record of $25 billion, first set in 2009. The sale follows last week’s quarterly refunding announcement, which saw the Treasury once again amp up issuance plans to finance the widening federal budget deficit.

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The US debt explosion jumped in 2007 and never returned to the old trajectory.

Continue reading U.S. Set To Sell $26 Billion of 2028 Notes Wednesday

Breakevens, TIPs and Other Harsh Realities

By Kevin Muir

I was early in calling for an increase in breakevens and a decline in bond prices. No denying it. But at least I stuck with it and didn’t get shaken off. Heck, I even reiterated the call earlier this year – Breakeven Refresher Lesson.

Since then, breakeven inflation rates have been steadily rising.

So here we are with the market finally pricing in increased inflation rates. Whereas a couple of years ago pundits were filled with worries about disinflation, today the opposite concern dominates financial airwaves.

Has the market gotten ahead of itself? Or is inflation about to take off?

Continue reading Breakevens, TIPs and Other Harsh Realities

All Eyez on 3

By Heisenberg

Well, it looks like it’s going to be all about 3% on 10s on Monday, or at least early on.

The selloff in the long end late last week and accompanying steepening has everyone squarely focused on that oh so scary round number again and yields ticked up a bit more overnight, ensuring that your coworkers will be forced to begrudgingly try and come up with some new factoid about 3% so they can impress their colleagues.

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The dollar rose for a fifth consecutive session as yields are underpinning the greenback with folks apparently willing to overlook (for now) the deficit issue and the fact that Trump has adopted a weak dollar policy by proxy. Of course positioning shows no one is actually “ignoring” the developing structural headwinds.

Continue reading All Eyez on 3

Treasury Market Volatility Back Near Record Lows

By Anthony B. Sanders

That’s The Way The Fed Likes It

Treasury market volatility is back near record lows. That’s the way The Fed likes it.

(Bloomberg) Volatility in the Treasuries market is subdued, according to Bank of America Merrill Lynch’s MOVE Index. The measure of anticipated price swings in the U.S. securities dropped below 50 on Monday for the first time in three months, putting it closer now to its record low of about 44 than it is to its high for the year of about 72 in early February. The decline may suggest traders increasingly doubt the Federal Reserve will follow through on its plan to raise interest rates at least two more time this year.

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Here is the MOVE index since 2007 where you can see the financial crisis and The Fed’s response by extinguishing volatility.

Continue reading Treasury Market Volatility Back Near Record Lows

TreasFest! $30 Billion Treasury 2Y Note Auction Draws Yield Of 2.31%, Highest Since 2008

By Anthony B. Sanders

Treasury’s $30 billion two-year U.S. note sale drew a yield of 2.31 percent, the highest since 2008, with a bid-to-cover ratio of 2.91, in line with the average over the past 10 auctions. Indirect bidders, a class of investors that includes foreign central banks and mutual funds, bought 44.5 percent, down from the 49.7 percent average. Direct bidders purchased 14.1 percent.

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That left primary dealers, which are obligated to bid at auctions, with 41.3 percent, the largest share since December.

Continue reading TreasFest! $30 Billion Treasury 2Y Note Auction Draws Yield Of 2.31%, Highest Since 2008

30-year Treasury Auction Strong With $13 Billion Sold To Public (None Bought By The Fed)

By Anthony B. Sanders

[Yesterday’s] US Treasury 30-year bond auction was strong. $13 billion were sold to the public  and none purchased by The Fed for the first time since the December 12, 2017 auction.

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So far, so good. Despite massive Federal spending and projected budget deficits, Treasury auctions are going well.

Continue reading 30-year Treasury Auction Strong With $13 Billion Sold To Public (None Bought By The Fed)

Here’s Who Will Buy All That Treasury Supply

By Heisenberg

Now if we only knew the price…

10Y yields are back near their lowest levels since last month’s CPI beat, having given back Tuesday’s Jerome Powell-inspired spike that derailed equities.

They’ll be no shortage of narrative fodder on Thursday with Powell’s second act (this time in testimony to the Senate) and PCE on the docket, but panning out, the question still lingers: how high will yields go? And of course the follow-up that no one can answer: what is the magic number on 10s beyond which equities can no longer pretend not to care?

Here are the monthly yield changes for UST benchmarks from February:

  • 2Y +10.9bp
  • 5Y +12.6bp
  • 10Y +15.6bp
  • 30Y +18.9bp

As a reminder, the two-month rise in real yields (i.e. January plus February) was the largest since the election:

RealYields

Just to be clear, folks are getting pretty deep into the weeds here when it comes to forecasting yield levels given a set of assumptions. And by “deep in the weeds” I just mean that people are bending over backwards to find a reliable framework for forecasting. It’s not so much that the methodologies being employed are particularly innovative (this isn’t exactly rocket science), it’s just that the amount of time being spent on it is probably some semblance of absurd considering the inherent futility of trying to accurately forecast this. Here’s BofAML’s latest:

Continue reading Here’s Who Will Buy All That Treasury Supply