Some have argued that the prior rise in market rates was aggressive enough to fully discount the realized data. Maybe. Others have pointed to more recent instances of volatility, stretching from the Archegos collapse to Turkish central bank complications to the Covid crisis still gripping Brazil/India to the more recent upping the ante on US sanctions on Russia. Perhaps. These are certainly arguments that explain why market rates could fall. But surely we need more.
The absolute level of the US 10yr yield at around 1.5% is significantly deviant from a likely 10% nominal expansion in the US economy this year. And if that was not enough, within that 10% there is a 3-4% inflation experience to come. Bond markets hate inflation, as bonds pay fixed payments that get quickly eaten up it. The typical reaction to a spurt of inflation is a spurt of higher yields as bond participants demand more protection for their real returns.
Which bring us to one explanation for why yields are remaining so low. Simply put, there is remarkable demand for bonds, all the way from US Treasury auctions that were snapped up last week, to primary deals right out the credit curve that get
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