Bonds were facing headwinds as the week began. Friday had just seen an exceptionally strong NFP. Yields were quickly pushing toward the higher end of their post-Brexit range. And significant “supply”–both from corporate bonds and scheduled Treasury auctions–was yet to come. Indeed, it looked as if we were risk of seeing the range break on the unfriendly side.
But today has gone a long way in calming those fears. After hitting 1.616% yesterday, 10yr yields were as low as 1.535% today. Domestic economic data didn’t hurt, with Productivity coming in at -0.5% vs a median forecast of +0.4%, but bonds look like they would have rallied regardless.
Interestingly enough, it was actually “supply” that helped get today’s party started, but not quite the same supply we were worried about. Instead, there was a LACK of supply when the Bank of England tried to buy bonds early this morning.
That provided a stark reminder about the commoditization of longer-duration government bonds (“buy this stuff and hope to sell it at a higher price, without regard for its yield”) and helped European markets lead global bond yields lower in the morning. Investors were even clamoring to buy 3yr Treasuries as evidenced by the strong auction at 1pm. That helped add to gains that were already in place from the morning hours.