Treasury Bond Bears Look Ready to Hibernate

Sometimes Mr. Market just wakes up on the right side of the bed.

Yields on 10-year Treasury notes plummeted 20 basis points on Wednesday, the most since the banking crisis in March. For all the macroeconomic news of the day, it was hard to pinpoint exactly what changed so meaningfully from one trading session to the next. But the rally suggested that we may be seeing a meaningful shift in sentiment after an abysmal three months, with the potential for it to fuel a virtuous cycle.

Yields Plunge

Consider the developments:

  • 8:30 a.m. EST: The Treasury said it was selling $112 billion of longer-term securities at auctions next week; firms surveyed by Bloomberg had expected $114 billion. Bond yields fell about 7 basis points intraday on easing supply concerns, and were down about 10 basis points from the previous close.
  • 10 a.m.: A slew of economic data gave credence to the view that the economy could be slowing (a “good thing” if you want lower interest rates.) Among them, the Institute for Supply Management’s manufacturing gauge posted its biggest monthly decrease in more than a year and trailed all economist estimates. Bond yields fell another 3 basis points.
  • 2 p.m.: The Federal Reserve held policy rates steady at 5.25%-5.5%, as was widely expected, and Chair Jerome Powell came off as modestly less hawkish than some investors anticipated — all while keeping his options open for further rate increases and an extended period of elevated rates. Bond yields fell about 7 basis points more.