Bonds were certainly due for a breather, and they took one on Thursday following the best month for US government debt since 2008.
At the short-end, 2-year yields were cheaper by nearly 14 bps at one juncture. I missed the peak, but Bloomberg’s Luke Kawa nearly captured it.
Trump appeared to turbocharge things with a tweet about “really good jobs numbers”, which some interpreted as another example of the US president leaking the monthly payrolls report. Of course, he might have been referring to ADP (which came in much better than estimates), or perhaps conflating ADP with NFP. Whatever the case, it was gas on the fire.
With less than three hours to go in the US session, TLT was on track for its worst day since Trump’s election. 10-year yields rose more than 10bps.
Over the past month, plunging yields and the manic grab for duration were generally a problem for equities and risk sentiment, especially when the relentless rally at the long end added to the bull flattening impulse that inverted the 2s10s.
As noted here over the weekend, bonds taking a breather should be bullish for stocks at least in the near-term, as rising yields would be seen as a sign that the growth outlook is improving and/or the trade outlook brightening.
That said, a “too far, too fast” scenario is highly undesirable. While the bond rally has itself been viewed through the lens of an imminent US recession, the irony is that, as BofA’s Michael Hartnett cautioned late last week while explaining the risks to the bank’s newly bullish take on equities, “a disorderly rise of interest rates could cause Wall St deleveraging, deleveraging in public and private markets and thereafter a Main St recession”.
For now, though, it’s risk-on. And “bigly”.