The Treasury bond market is rallying as reflected by falling interest rates.
“Everyone is asking about strength in Treasury prices after ISM,” said ED&F Man Capital Markets’ Tom DiGaloma in an email. “Shorts may be covering ahead of NFP possibly — some talk of buying out the curve from foreign investors too.”
Strong economic data is supposed to encourage the Federal Reserve to want to taper quantitative easing and raise rates more aggressively sooner than later, which means higher interest rates. This is why people are perplexed by the falling rates.
“Bonds have been breaking higher since the GDP print yesterday,” noted Stifel Nicolaus’ Dave Lutz in an email.
“We are hearing the bid for treasuries is coming from across the investment spectrum — HFs, Long Onlys, Pensions, Asians, Banks, Insurers, etc… Heck of a bet into the Non-Farm payroll print tomorrow.”
Lutz pointed to a few reasons why bonds might be moving up:
- low liquidity in the bond markets
- no inflation
- the Fed is still considered more hawkish than its peers like the Bank of Japan and the European Central Bank
- people readjusting economic assumptions after yesterday’s horrible GDP report
- funds may be rotating into bonds as “window dressing” since its month end/beginning
- bad positioning — CFTC data showed that short positions in 10-year note futures were near four-year highs.
“Crowd is usually wrong,” said Lutz about that last point.
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