Bonds are surging again.
The 10-year Treasury note yield is tumbling. Moments ago, it touched a low of 2.4006%.
There’s very little consensus as to what’s causing Treasuries to surge.
Brean Capital’s Peter Tchir circulated a 6-page research note earlier today addressing the various theories.
After dispelling two reasons, Tchir identified five reasons that he believed had some validity:
- ECB: “The ECB meets on June 5th and has worked the market up to a frenzy expecting an extremely accommodative ECB. Rate cuts are fully priced in and you can almost see bond buyers salivating at the prospect of QE.”
- Short Squeeze: “This market has been “hated”. Everyone loves to hate treasuries. Every time yields go higher there is a mad scramble to put faces on the TV or in the print who have the most dire predictions for treasury yields … Being long treasuries has been an unpopular trade. Being short treasuries, either outright or against risky bond asset classes has been a relatively popular trade.”
- Underweight: “There is a long term issue in the bond market that too many investors have remained underweight duration and that will be corrected, over time.”
- Liquidity: “If you “need” to do something, and the operative word here is “need” then there is a good chance that everyone else “needs” to do the same thing at the same time and execution will be horrific.”
- Growth: “Concern that growth has not only slowed, but that Q1’s negative GDP may not be a complete anomaly, is becoming more pronounced.”
To that last point, we just learned that Q1 GDP growth was -1.0%, which was much worse than the -0.5% expected by economists.
For the most part, economists are emphasising that this is a backward looking indicator.
Nevertheless, some folks can’t help but think that growth even today might be lower than estimated.
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