What a difference a few trading sessions can make. After printing multi- week highs last Friday and severely testing the long -term bears the ultra long bond triggered a downside breakout of a rising wedge on Monday and hasn’t looked back. News of higher sovereign supply, namely German bunds, started the avalanche off in the early morning hours and all European bonds have continued to tumble this week.
The U.S. thirty year yield has pushed up a full .20 basis points in relentless fashion. It’s the biggest rip of the year as curve flatteners have gotten flattened and their panic to get out of the way and cover positions has added to the rout in prices . Yields on the tens gapped thru the 2.40 area on follow thru selling Tuesday and have just now stalled under 2.50. Adding to the bearish mix are the very buoyant economic numbers which continue to hit the tape. Totally valid concerns of a considerable widening of budget deficit have also been reignited . In fact the Treasury has already estimated the net supply it’ll need to bring to market will double in 2018. The real issue however for 2018 in my opinion will be the possibility of inflation . The market has been correctly priced for semi -perfection on the inflation front for the last few years. Any change to the upside in the new year after the tax cut boost begins to run through the economy might rock the boat. That could be what the last few days have really been about. Philly Fed hits tomorrow along with the with the usual jobless claims . On Friday durable goods, personal income, consumer sentiment and new home sales round out the week .