4 Minute Read by Reuters Staff Reuters, NEW YORK, July 8 – On Thursday, a frantic surge in US government bonds resumed, with 10-year Treasury rates falling to their lowest levels since early-2021, as investors saw cracks in the economic recovery and low inflation threats. Yields fell by as much as 7 basis points across the curve, with the 10-year note hitting 1.25 percent before bouncing back over 1.29 percent as prices soared once again, indicating that investors expecting greater borrowing costs were changing their minds. COMMENTS: SUBADRA RAJAPPA, SOCIETE GENERALE, NEW YORK, HEAD OF US RATES STRATEGY “I believe there is some concern on the employment front, with the market doubting whether the Fed will be able to make further progress on employment before slowing asset purchases in order to achieve its mandate. You could detect some flaws in the data released on Friday, and then the ISM employment component appeared to show some deterioration, so the bond market’s concern appears to be along those lines. The market is pricing in the timing of the first rate hike, as well as the speed of subsequent rate hikes, which has resulted in Treasuries flattening.” NATIXIS, NEW YORK, JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST “In Q1, the market expected the Fed Funds rate to return to 2.38 percent, as it had been in the previous cycle. The question is why has the market’s anticipation of the terminal rate dropped so much? The main reason is that the economy appears to be doing well. However, this is the apex, and future development will be slower. That relates to the fleeting character of things.” There’s one more thing. Over the last few weeks, the prospects for stimulus and increased government spending have faded. People aren’t talking about it, but if the federal government’s budget doesn’t rise beyond $6 trillion, that’s good news for bonds. I don’t believe enough people have paid attention to it.” STEVE ENGLANDER, STANDARD CHARTERED, NEW YORK, HEAD OF NORTH AMERICA MACRO STRATEGY “Today, I believe there is a market force that is driving it down. However, since the beginning of June, there appears to be a link between COVID fears and weakening in COVID-sensitive equities vs COVID-insensitive stocks, implying that concern over the delta variant may be more than previously thought. It’s been cascading into other markets over the last 48 hours.” “Economic disruptions, lockdowns, and other measures are likely.” NEW YORK’S BESPOKE INVESTMENT GROUP’S PAUL HICKEY (email) “As treasury yields continue to fall, equities investors are seeing the bond market rally as a hint of impending weakness and profiting now. The S&P 500 is expected to open down approximately 1.25 percent, while both the Dow and Nasdaq futures are already down by about the same amount “a certain degree.” Naturally, a variety of factors have been blamed for the fall, including the growing danger of the Delta version, a slower-than-expected economic recovery, and the lack of an infrastructure agreement. The market, on the other hand, doesn’t always need a justification to sell off; sometimes it just needs to blow off steam.” The Global Finance & Markets Breaking News team compiled this list./n
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