The US Treasury market paused for breath yesterday as yields moved higher across the curve by a few basis points. The catalyst was a weaker auction on $27Bln of ten-year notes which had a 1.7bp tail. This should be put in context that this month’s 10-year auction is at levels some 40bp lower than last months and so some hesitancy from bidders should have been expected. Needless to say, the curve is still pricing in a full 50bp ease from the Fed this year.
In regard to the Fed, President Trump stepped up his attack ‘Three more central Banks cut. Our problem is not China – We are stronger than ever our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much. They must cut rates bigger and faster, and stop their ridiculous quantitative tightening NOW’. Further adding ‘yield curve is at too wide a margin, and no inflation! Incompetence is a terrible thing to watch, especially when things could be taken care of sooo easily’ ‘ it would be much easier if the Fed understood, which they don’t, that we are competing against other countries, all of whom want to do well at our expense!
As there is no Fed meeting in August the next big event is the annual Jackson Hole gathering from the 22nd to the 24th of the month and so the market, we expect, will be driven by trade developments which currently are showing anything but signs of improvement. So even though the last several trading days have seen a substantial fall in yields across the curve we would really be very wary of fading the current rally. ‘Don’t stand in front of a runaway train’ or the other one which springs to mind ‘Do not try to catch a falling knife’. Indeed PIMCO warned today that Treasury yields could go negative, which we think is a long shot given the current outlook, but a very good statement if you want to hit the headlines and of course wind the President up even further.