Treasury yields tumbled yesterday, pushing the benchmark 10-year
below 1.2% for the first time since February. That had a knock-on effect on reflation plays, with the Dow
(DJI) (NYSEARCA:DIA) seeing its biggest down day since October. This morning, yields are ticking up a little, with the 10-year Treasury
(NYSEARCA:TBT) (NASDAQ:TLT) up 3 basis points to 1.21%. A sharp decline in yields coincidental to a rise in COVID Delta variant cases indicates economic growth concerns. But technical factors are also at play.
"It's a battle between the fundamentals and the technicals," says Myles Bradshaw, J.P. Morgan Asset Management head of global aggregate fixed income strategies. "The fundamentals, we all know. The economy is strong, the economy is recovering, inflation is rising, so why are bond yields falling? It seems bizarre, doesn't it?"
"Bond yields are falling, I think, critically because of a lot of positions issues," he says. Bradshaw said on Bloomberg that prior to the most recent Fed meeting "there was a lot of positions, short position in the long bond sector, and therefore you had short covering. You've also had increased buying from liability-driven investors that has meant there has been no marginal sellout on the long end."
"I think the technicals are extremely positive, there's a demand for a safe asset as equities move higher and that's been beating fundamentals of late."
Another transitory phenomenon?: Just as the Fed has been banging the drum on inflation being transitory, Wall Street strategists still look convinced that the path for rates is higher this year. Halfway into 2021, the median 10-year yield forecast among 30 analysts was 1.75%. The
predictions ranged between 1.5% and 2%.
The probability of a recession next year is just 7%, "far below the 20% that has forecast nearly every recession back 60 years," BTIG's Julian Emanuel writes. "What has the bond market bid in our view is the Wall of Money," he says. "Monetary and fiscal policy enacted and proposed equal to 55% of GDP; the Fed's balance sheet, government debt, money supply, and money market balances all moving skyward. This same Wall has bid up stocks, commodities, crypto, houses and goods of all kinds - inflation."
"We think the market's focus on rate hikes and the flattening of the yield curve is a bit premature," Subadra Rajappa, fixed income strategist at Société Générale, writes. "We believe risks are skewed towards higher yields and recommend positioning for it by way of positive carry steepeners in cash and conditionally via swaptions."
"We think the fall in yields partly indicates confidence that - inflation will prove fleeting," UBS says. "But it also reflects technical factors in the Treasury market that we expect to fade and worries over growth that we think are overdone. As a result, we see 10-year yields rising back to 2% over the coming year." (
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Statins, a popular class of cholesterol-lowering drugs, may also lower the risk of death from COVID-19, according to new findings.
Examining data from the American Heart Association's COVID-19 Cardiovascular Disease Registry, researchers at the University of California San Diego School of Medicine found that patients taking statin medications had a 41% lower risk of in-hospital death from COVID-19. Statins' anti-inflammatory effects and binding capabilities may potentially hinder progression of COVID-19. (
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