Treasury Yields Surge as Europe-Induced Taper Tantrum Continues
Blame Mario Draghi. The European Central Bank president suggested Tuesday that the eurozone's bond buying program may be scaled back in the future. Since then, global sovereign bond markets have been selling off.
A 1.6% rise in German consumer price inflation reported Thursday morning didn't help.
The worst selling pressure is in Europe where German Bunds are up 20 basis points this week.
But long-term U.S. Treasury yields aren't that far behind. Thursday morning, the yield on the 10-year Treasury note was 2.29% at 9 a.m. ET, the highest level since mid-May. Monday it was just 2.13%, a rapid 16 basis point climb.
Thomas Byrne of Wealth Strategies & Management believes algorithms and panic by U.S. wealth managers are fueling the rate rise. He tells Barron's :
The selloff on the long end is picking up steam as a central bank-driven tantrum takes hold. This appears to be driven by algorithms and panic from wealth management clients. Bond market professionals are much less worried that any central bank currently involved in QE is going to slam on the brakes. Make no mistake, the real reason behind less dovish comments (I can't really consider them hawkish comments) is that many central bankers believe that the economic cycle is mature, if not a bit over-ripe. As such, they are concerned that asset values are overheated and they feel the need to re-stock policy ammunition for the next slowdown.
He doesn't expect the selling pressure to continue for long. He adds:
Although I think this a bit of a knee-jerk reaction in the bund market. If the selloff fades in Europe, it should fade in the U.S. as well. I doubt this is the beginning of a prolong move high for long-term interest rates, unless Mr. Draghi becomes a policy hawk.
Kevin Giddis of Raymond James admits he didn't see the reaction to Draghi coming, believing his comments were less hawkish than the market's initial interpretation. He writes Thursday:
I still believe that this is an emotional trade with little in the way of fundamental support to take yields much higher than they are now. In the face of this, I continue to believe that there is a price rally in our future.
The iShares 20+ Year Treasury Bond ETF ( TLT) was down $1.23, or about 1% at $125.24 as of 9:45 a.m. TLT closed Monday above $128 for the first time since election day.
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