The US Treasury is fixing to sell the staggering sum of $294 billion in bills, notes and bonds this week, and it’s a holiday shortened week at that. So you’d think the bond market would be choking at least a tad on this tsunami of paper, but in fact yields on the 10-year UST have dropped by 20 basis points recently and are now at five week lows.
To be sure, at 2.75% the yield is still 140 basis points above it mid-2016 post-Brexit low; and its is only a matter of time before the treasury benchmark resumes its upward march through the 3.00% mark on the chart below and from there toward 4.00% and beyond.
In fact, that impending “yield shock” is so baked into the cake that you can smell it burning on the bottom of the pan. By contrast, the minor head fake in the opposite direction this week is just the boys in the bond pits buying a silly rumor and squeezing some folks who perhaps got too short too fast.
Here we use the word “silly” purposefully. The chatter at the moment is that the so-called inflation scare from the 2.9% reading on January wages has faded markedly, and that the Fed consequently may find reason to ease the pace of its rate hiking campaign or even end it early.
As former Lehman trader and now Bloomberg macro commentator, Mark Cudmore, recently noted: