After a weak 3 yr note auction, the 10 yr was worse. The yield of 2.40% was almost 2 bps above the when issued. The bid to cover of 2.33 was below the 12 month average of 2.47 and dealers got stuck with 34% of the auction, above the one year average of 28%. Treasuries immediately sold off in response and the now off the run is yielding 2.41% vs 2.37% earlier today and up 1 bp vs yesterday’s close. As the 2 yr yield is up 1 bp too, the spread between the two is unchanged.
Bottom line, until proven otherwise, the 2.30-2.60% range remains the predominant trend. The trade below lasted about two weeks and was quickly reversed when French politics resolved itself. It certainly wasn’t because there was much of a change in the US economic data but there was improvement in Europe. European bonds and the influence of the ECB may very well ultimately determine the direction of US yields this year because of the high correlation as the ECB most likely continues its tapering. Right now the spread between the US 10 yr yield and German bund 10 yr yield is at 198 bps. As for the US economic influence on Treasuries, the growth is good enough for the Fed to continue hiking but the flattening of the curve is a response that participants are a bit worried about the impact coming off a punk Q1. The 2s/10s spread stands just 5 bps from where it stood on election day.
10 year Yield, 1 month:
10 year Yield, 5 years:
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.