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In other words: Why aren’t yields rising when stocks are rising?
It seems analysts paid to analyse these markets are now just completely befuddled.
In a note from Nomura’s top rates strategist Goerge Goncalves titled: Correlation Breakdown – Something Has to Give (incidentally, that was close to the title of our first post on the subject last week), the bizarre behaviour of Treasuries is discussed:
Another day of confused price action, and we find it hard to fathom the key drivers of price action. We
have reached a stage where US markets are pricing in worse outcomes than the eurozone debt and FX markets, and the risk for a snap to higher rates is increasingly solid and real.
The UST market continues to operate in its own world, divorced from other markets and fundamental factors, as the curve bull-flattened on a day when stocks, oil, EUR and peripheral debt also rallied
.While there is no shortage of plausible reasons for the UST moves (including oil price targets and Fitch Greece comments), the fact that the UST market seems to react only to bad news and ignores good news (and is the only market to display such a bias) indicates a lack of conviction among
rates investors. We maintain that current market levels are not sustainable (and other markets are normalizing), and it’s only a matter of time before we see a sharp move to higher rates unless worst-case outcomes are realised in the eurozone.