Ahead of $110 billion of new 3, 10 and 30 year Treasury debt sales this week, bond markets are suddenly jostling against the idea the Fed has them wrapped in cotton wool. After pushing implied volatility on Treasuries to its lowest on record over the past couple of months on assumptions of an implicit Fed yield capping regime, this week saw 10-year and 30 year yields jump back to 4-month highs as chances of fresh fiscal stimulus both now and after the election rose. The long end of the yield curve was hit hardest and the curve between 5 years and 30 years steepened to its highest since the last Presidential election in 2016. The move also tallied with data late last week showing a record short position had built up in Treasury bond futures. So, there may be little or no room for yields to fall much further from here, but how high will they go before the Fed steps in?
Chart by Ritvik Carvalho and commentary by Mike Dolan
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