How many ways could bond market weakness have been justified today? Shall I count the ways?
- GDP +3.2 vs +3.0 forecast and +2.9 previously
- Business Inventories only added 0.49% to the GDP total (a higher amount could serve as a counterpoint to the strong GDP reading.
- Consumer Confidence +107.1 vs +101.2 (a big beat).
- Other components of Confidence numbers were strong
- Stocks, European bond markets, and the prevailing trend all argued for weakness
- Corporate bond issuance has ramped up (adds pressure to Treasuries for these reasons).
- Yesterday was good, and are we even allowed to have 2 good days in a row anymore?!
That laundry list of negative justification had to face off against a seemingly inferior team of positive anecdotes.
- Investors are fretting over tomorrow’s OPEC meeting and oil prices were under some pressure today.
- 10yr yields managed to avoid breaking the 2.35% technical ceiling this morning.
- traders had a bit of extra motivation for month-end bond buying
Of that list of positives, it was really the month-end buying that did the heavy lifting. To offer a gross oversimplification, it’s been very fashionable to sell bonds in November. Selling has been aggressive enough that some traders found themselves a bit understocked on the bonds they’re required to be holding by the end of business tomorrow.
There wasn’t much sense in buying aggressively while yields were drifting higher this morning. Primary dealers were also compelled to bid at a Treasury Bill auction at 11:30am. But shortly thereafter, the jig was up and a modest frenzy of month-end buying brought bond markets back into positive territory on the day.