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It was mostly in the futures market. Risk-parity funds were betting on volatility staying low for bonds and stocks. 10-year yield is about halfway back to the December 2019 level of 1.91.
The longer term you go out in bonds the more the prices are determined like stocks , by greed ,fear and perception of future economic conditions ...
The fed can try to influence bond investors. Like now where they keep saying they are okay with higher yields and higher inflation ...so bond investors have been demanding more and more interest to hold bonds .
But ultimately the worlds investors have the ball ..the fed can try doing yield control to reign in bond rates using the tools they have but the worlds investors can over power them anyway if they disagree
Last edited by mathjak107; 02-26-2021 at 04:36 AM..
They've done yield curve control in the past, but have not moved to that mode as yet. So the evidence is that they can suppress bond yields. Japan has been doing it for some time. Debt supply fluctuates. What people misunderstand from QE is that they think it all moves in a straight line. There are times when the government is not issuing any debt but the Fed is still buying treasuries. There are also times when the government issues a large trove of debt at one time.
Even Japan had trouble keeping their bond rates at zero this month as investors got control ... Japan, which targets keeping bond yields at around 0%, has seen 10-year yields rise almost 10 bps this month to 0.15%
Supply and demand. Bond prices and yields are inversely correlated. The Treasury can issue as many bonds as they want, but if there are fewer buyers prices fall, resulting in yields rising. It appears that this is what's been going on in recent weeks as the 10-year rose back up to 1.5%.
When interest rates are rising, demand for existing bonds falls because investors anticipate getting higher yields on tomorrow's bonds. If today's bonds earn 1.5%, but investors anticipate future yields will rise to 1.75% or 2%, they are unwilling to pay as much for the 1.5% yielding bonds, so prices fall. Conversely, when interest rates are falling, demand for today's bonds rises causing prices to rise, since tomorrow's bonds may yield lower %.
The FED only controls the Federal Funds Rate, which can influence all other rates to a point. The FED can to a certain degree exercise yield-control, by buying back massive quantities of treasury bonds, resulting in artificial demand and prices rising, which suppresses yields.
Generally speaking, inflation influences bond yields. The higher the inflation rate the higher the bond yields investors demand.
One metric to look at is commodity prices, since those indirectly affect the prices you pay at the register.
Just my two cents, but I expect more jolts in bond yields within the next year or so. Oil prices have been rising steadily after its low point last year, but once travel reopens and air travel picks up, it'll likely cause surges in oil prices as well as surges in bond yields. Federal stimulus packages were welcomed by the stock market in the recent past but lately it appears to spook the bond markets. We will see how the bond market reacts to the next stimulus plan when approved.
The longer bonds go out the more bonds are effected by greed , fear and the perception of FUTURE inflation.
In a fairly week economy like we have rising yields can slow growth and push us towards recession .
If I had to guess the rising rates will cause economic reports to stumble , stocks will stumble and there will be a flight to safety and rates will tumble again
If bonds are having trouble selling at par, the next issue will have to have the interest rate raised. The higher the interest rate, the more likely the bond will sell. If people are snapping up the bonds at above par, the next issue will come out at a lower interest rate. Bond issuers don't pay any higher interest rate than the minimum they need to, to have people buy the bond.
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