US Treasury yields jumped significantly today. The action was downright ugly for treasury bulls. And yields continued their rise into the evening, albeit slightly.

US Treasury Yield Action ​October 3

Image placeholder title



Six Reasons Yields May Be Rising

  1. The economy is getting stronger. The ADP jobs reports says the economy expanded by 230,000 jobs in September.
  2. Amazon hiked its minimum wage. Some expect the Phillips Curve to kick in.
  3. Fed chairman Jerome Powell is yapping about how strong and sustainable the US economy is.
  4. Hedging costs in Euros and Yen are high and rising. That makes US treasuries unattractive to foreign buyers who need to lock in gains in a currency other than dollars.
  5. Hedge funds are plowing into US treasury shorts.
  6. Trump closed a trade deal with Canada and Mexico

1) Economy is Getting Stronger

ADP says US Payrolls Expanded by 230,000 Jobs in September.

Image placeholder title

ADP runs hot and cold but that report could cause a yield surge. Jobs are a very lagging indicator, but the market focuses on the here and now.

2) Amazon

Amazon hiked its minimum wage. Some expect the Phillips Curve to kick in. The Phillips Curve theory is that there is a direct relationship between hiring and inflation.

The Phillips Curve is proven nonsense. A Fed study came to that conclusion, but it was obvious all along.

That does not matter one iota. What does matter is people believe in it. Janet Yellen was among the believers, despite the Fed study.

3) Jerome Powell Yapping Today

The New York Times reported today Fed’s Powell Says Strong Economic Path ‘Not Too Good to Be True’.

The Wall Street Journal reports Fed Chair Powell Sees ‘Remarkably Positive Set of Economic Circumstances’

4) Hedging Costs

Bill Gross says hedging costs make US treasuries unattractive for foreign buyers.

Image placeholder title

Zero Hedge has an interesting take and more charts in his post This Is Why Bonds Are Crashing, According To Bill Gross.

5) Hedge Funds Pile On US Treasury Shorts

Image placeholder title

Hedge funds are sort a record number of 10-year Treasury contracts. As long as shorts keep piling on, there is pressure on yields.

6) Trump closed a trade deal with Canada and Mexico

Part of the deal with Mexico involves and increase in Mexican wages that unions want. This is pretty feeble, as well as disputed, but some may believe it.

Assessing the Six Reasons

To assess the six reasons, we need to separate short-term factors from long-term factors.

Short-Term Reaction

To explain today, look at ADP, Jerome Powell, Amazon, and possibly Trump's trade deal, in that order. The latter is the weakest of any of the theories.

Alternatively, move Jerome Powell into the top spot, ahead of ADP.

Long Term Reaction

Bill Gross may indeed be onto something with his hedging theory.

And clearly, a build-up in treasury shorts does not help.

Expect a Huge Snap-Back

Without a doubt, there will be a huge snap-back huge at some point.

Record numbers of hedge funds all believing the same thing as the Fed is 100% guaranteed to be wrong in a major way.

The only question, as always, is timing.

Mike "Mish" Shedlock

In Search of the Allegedly Steepening Yield Curve

There has been a lot of commentaries recently about the steepening yield curve. Let's investigate with pictures.

Yield Curve Steepens Dramatically: What's Going On?

US treasuries are seeing action we have not seen for a while: Strong sharp steepening of the yield curve.

Yield Curve Steepens but Recession Risks Haven't Faded

The yield curve has steepened considerably in the past month. Some think it means recession risk has diminished.

Yield Curve Steepened Since January 3 but Portions Remain Inverted

On Jan 3, portions of the yield curve inverted with the Fed Funds rate. That's gone, but other inversions remain.

Yield Curve Steepening and Flattening: It Depends on Where One Looks

Some claim the yield curve is flattening, others say steepening. The steepening side has more merit starting January 2.

Yield Curve Bear Steepener?

Minyanville Prof. Bennet Sedacca is writing about the Bear Steepener.

Debate over the Yield Curve: Is it Steepening or Flattening?

A recent Wall Street Journal story stated that “A flattening of the Treasury yield curve in 2017 is a worrying sign for investors banking on resurgent U.S. inflation and growth.”

Treasury Yields Surge: Crowded Bet a Winner for Now

Treasury yields are up across the board, with the 30-year bond approaching a breakout level.

Checking Back In on the Yield Curve

It's been about a month since I last posted on the yield curve. Let's take a current snapshot.