There was a Bloomberg article out on Sunday night that quickly made rounds in financial markets and among market watchers. It isn't 'in your face' about it, but essentially claims to explain the secret source of the bit of extra resilience in longer dated Treasuries that has many scratching their heads.
Any time anything in financial markets leads to such pervasive head-scratching, any explanation to tidily lines up cause and effect is most welcome. Unfortunately, if the situation were even remotely as tidy as suggested (new pension fund rules creating a lack of supply in 30yr bonds), there's absolutely no way it would constitute any sort of revelation. A quick glance at market activity clearly shows that no such revelations were inferred.
If the article was "new news" to the trading community, we'd rightfully expect to see 30yr yields improve versus 10yr yields so far this week. In fact, the opposite is true, as seen in the lower half of the chart below. The upper half, however, does show marked outperformance of 30 yr bonds since mid 2013, ostensibly adding credence to the notion that "something" is inordinately benefiting them.
Look at the chart above again though. What do we notice about the peaks and valleys? Here's a longer term look at 10yr yields vs the same green line from the chart above (higher = 30yr outperforming). You should notice 2 things. First, the green line is more volatile than 10yr yields alone. Indeed 30's are more volatile than 10's over time. Second, 30's perform better when 10's are flat or rising.
One additional conclusion from this chart is that demand for 30's ramped up in the mid 2000's when 10yr yields were rising stagnantly and reluctantly. The same sort of stagnant and reluctant rise is happening since the epic sell-off of mid-2013 leveled off. Long story short: maybe this is just how longer maturity debt behaves in the biggest of pictures, regardless of the near term explanations.
As for the presence of a secret bond market boon, unfortunately this can't be credited as a force helping to keep rates in check in 2014. We've already discussed some of the fundamental possibilities for the seemingly mysterious resilience (not the least of which being the flagging housing market). But there's an 800lb gorilla in the room that makes a much more effective scapegoat-or scape-gorilla as it were...
The gorilla in this case is core European debt, represented today by Germany (EU's sovereign debt yardstick). US Treasuries and German government debt are almost always moving in the same direction in only slightly varying magnitudes. Whereas Treasuries were keen to start heading higher in rate into 2014, EU rates weren't quite so keen. The two simply can't move too far apart too quickly. It would be like the price of strawberry jam rising astronomically without any disillusioned jam buyers shifting their preferences toward raspberry. Even though strawberry jam is delicious, it's not so delicious that we won't buy raspberry if the former gets too expensive.
The point of all this is not that the thoughts in the article aren't having a bearing on trading activity--simply that to whatever extent they are impacting trade, A) they're clearly not alone, as evidenced by the European impact and B) it's old news to traders as evidenced by the fact that 30s actually performed worse since that article came out. Bottom line: there are no super cool secrets right now. Just an apathetic stalemate.
That stalemate won't hear any riveting arguments today, unless Ukraine and Russia start getting really friendly really fast. Apart from geopolitical headlines, all we have stateside is the International Trade data, which is usually pretty boring. In terms of Treasury issuance, today does kick off the auction cycle with 3yr Notes, but they're not nearly the market mover that Wednesday's 10yr auction sometimes can be.
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