Bonds made it 3 days in a row today--rallying to the best levels since mid-January. In fact, apart from Jan 17th, today's closing yields were the lowest since late November!
Why is all this happening? That's a great question, judging by the various explanations being thrown around among market participants and in financial media. Most of the credit is going to some iteration of "politics," either in the US or with respect to European elections. That probably has more to do with the fact that political news is one of the only games in town this week when it comes to potential market movers.
A more plausible case could be made for last week's jobs report causing the shift in momentum (i.e. weak wage growth casting doubt on the previously perceived pace of Fed rate hikes). Whatever the case, traders were taking a lead-off ahead of today's 10yr auction. This is rare, but we see it happen from time to time. It refers to a paradoxical strength in bonds that results in the day's best levels just before the auction.
In the rarest cases, the auction justifies the lead-off and truly huge rallies ensue. In the more common case (like today's), the auction doesn't quite live up to the hype and bonds find their limit. The bounce back could have been much worse after today's auction. Bonds never even threatened to turn red, and ultimately made it most of the way back to the pre-auction levels.
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