The bond market rally has sent the 10-year Treasury yield tumbling to 2.5717% from 2.6858% earlier today.
The stock markets are sliding a bit deeper into the red.
Earlier today, we got a stronger-than-expected jobs report with nonfarm payrolls jumping 288,000 and the unemployment rate falling to 6.3%.
Stocks initially climbed as bonds sold off. But now we’re seeing a reversal.
Strong economic data is thought to encourage the Federal Reserve to want to taper quantitative easing and raise rates more aggressively sooner than later, which means higher yields on Treasuries. This is why people are somewhat perplexed by the falling rates.
“We are seeing heavy de-risking in Europe and London ahead of the weekend as Ukraine Headlines get worse (London and Japan three-day weekend to boot),” said Stifel Nicolaus’ Dave Lutz in an email.
Lutz reiterated several other reasons why bonds might be rallying: low liquidity in the bond markets; no inflation; the Fed is still considered more hawkish than peers such as the Bank of Japan and the European Central Bank; people are readjusting economic assumptions after Wednesday’s horrible GDP report; funds may be rotating into bonds as “window dressing” since its month end/beginning; and bad positioning — CFTC data showed that short positions in 10-year note futures were near four-year highs.
Still, the stock market could be doing a whole lot worse.
Charlie Brown of the Intercontinental Exchange notes that the latest fund flow data was an “expression of confidence in the markets.”
“Domestic equity funds investing in the U.S. saw inflows of $US1.9 billion in March, contributing to a year-to-date gain of $US18.3 billion,” Brown wrote in the NYSE MAC Desk midday update note. “Total equity flows had inflows of $US10.4 billion in March, adding to a $US53.5 billion inflow year-to-date. Flows into world equity funds registered $US8.5 billion in March, contributing to a ytd $US35.2 billion inflow. All good.”
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