There were no major headlines this morning and no big economic reports behind bonds’ big selling spree. Some news stories suggested overnight bond weakness was a product of Japan foregoing a normal bond buying operation, thus signaling a step toward tapering asset purchases.
While that may be on some investors’ minds, you wouldn’t have known it based on the initial reaction in overnight Treasury yields. The first move higher/weaker happened at the European open. Selling was only moderate overnight and largely recovered by the domestic open.
But then it was “game on.” Led by another surge in equities, bonds of all shapes and sizes joined the “risk on” move toward higher yields and higher stock prices. The terribly weak 5yr Treasury auction only added to the negative momentum at 1pm ET. 10yr yields ultimately hit 2.538 before sellers had their fill.
In the bigger picture, it looks like a thematic move is underway whereby financial markets have returned from a holiday intermission (which saw a nice break in the Nov-Dec sell-off) to buy more stocks and sell more bonds.