Many thought early this week that the prolonged flat spot in long-term rates would end the downtrend since November. The technical people -- chartists -- were right that the tension between downtrend and flat would break, but I don’t know anyone who thought it would break down this way.
Perhaps that’s why the break is so violent.
One piece at a time: the 10-year Treasury yield has crashed down to 2.30%. There’s a whole bunch of resistance in 2017 to hold 10s in the 2.20s or above, but there are issues in play for which market rules do not apply.
Signal: mortgages have not followed, which is the marker of overseas money buying Treasurys, not much caring for MBS. But the 10s move is so big that MBS is likely to catch up in the next days. In another overseas marker, German 10s have fallen to negative 0.117%, the lowest since 2016. A great deal of money all over the world is running for cover.
All of this began last night, the initial catalyst the tanking of the survey of Japan’s purchasing managers, back to contraction. However, the camel was already overloaded. Yesterday was a big day, reaction delayed.
Yesterday the Fed’s minutes of its May 1 meeting were “present, not voting.” Patient, sure, but non-responsive to trade tensions, insistent on transient low inflation, clutching the 2% inflation in the Dallas Trimmed Mean, and in twelve tight pages not a glimmer of adapting to a new world. If you’re the Fed and markets are priced for a cut, and you stonewall and then long-term yields stone-drop... that’s the whole fool world telling you that you’re wrong. More on that tomorrow.
More signals... one element pushing down on bond yields has been military risks in Iran and elsewhere. More than odd: gold never did move up. It’s up today in general market chaos, but still down fifteen bucks in May and sixty since February. And oil fell out of bed. Those moves say that a lot of money is worried more about economic slowdown than war.
The Dow is off $327 but not closed, certainly pushing down on bond yields.
Moments like this usually look uglier than they are. Today’s moves reflect anxiety far more than an actual slowdown.