"there are certain days when the price action itself is the key development – Thursday fits this characterization."
What was behind today's furious buying and/or short-covering frenzy in US Treasurys, which sent the 10Y yield briefly below 2.30%, the lowest since 2017, inverted the 3M-10Y curve and pushed all bond yields left of the 30Y below the Fed Funds rate?
That was the question on every bond trader's lips today, when as stocks were tumbling, capital seemed to flood into rates. One explanation, or attempt thereof, came from BMO's Ian Lyngen, who writes that "there are certain days when the price action itself is the key development – Thursday fits this characterization." In short, the price made the price, which makes sense since there was no notable, fundamental developments to justify the third biggest percentage drop in 10Y yields in the past 12 months.
Lyngen continues, and points out one aspect of today's rates move that was not as widely discussed - the collapse in breakevens:
The outsized drop in yields given the lack of major new fundamental information more reflects a series of major technical levels being breached in short order amidst a very bond bullish backdrop. Although the move was large – third largest decline in 10-year yields YTD – several major benchmarks simply repriced toward the bottom of downward sloping channels we’ve been tracking, at least in nominal space. We’re not back in the land of the 1-handle (yes, we meant 1), at least not yet. The more interesting, and consequential, development came in breakevens and corresponded to a shift lower – running counter to policymakers’ ambitions.
The chart below shows that as of today, the market is pricing in an average inflation rate of 1.76% over the next 10 years, a sharp drop from the 1.98% on April 25.
http://www.zerohedge.com/news/2019-05-23/what-was-behind-todays-violent-treasury-move
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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