The fast acceleration in US yield was a major shocker to the markets overnight. Fed officials are generally unconcerned with recent rally. They even sounded upbeat about the development in the bond markets. But some analysts pointed to the poor demand in the “awful” bond auctions overnight. Now that 10-year yield is back above 1.5%, we might be looking at next level around 2%, if the the rally persists.
Kansas City Fed President Esther George said, “much of this increase likely reflects growing optimism in the strength of the recovery and could be viewed as an encouraging sign of increasing growth expectations.”
Atlanta Fed President Raphael Bostic said, “yields have definitely moved at the longer end, but right now I am not worried about that. We will keep an eye out. … I am not expecting that we will need to respond at this point in terms of our policy.”
St. Louis Fed President James Bullard said, “I think the rise in yields is probably a good sign so far because it does reflect better outlook for U.S. economic growth and inflation expectations which are closer to the committee’s inflation target,”
However, some analysts noted that the sharp rally in yield was a result of the “tepid”, awful”, and “brutal” debt auction. The USD 62B of 7-year notes auction showed poor demand, with bid-to-cover ratio of 2.04, the lowest on record.
10-year yield closed up 0.129 at 1.518 overnight. 1.429 support turned resistance was taken out already and the rally is still in acceleration mode. We might now be looking at the next level at 1.971 resistance, 55 month EMA at 1.997, or even 61.8% retracement of 3.248 to 0.398 at 2.159.
