With the US Treasury market selling off sharply again where the 10 yr note yield is at the highest level since mid August, it begs the question of what the main catalyst is. Is it the growth belief, inflation worries and/or concerns with deteriorating US government finances? The markets are saying a little bit of all. Earnings last week from RIMM, ORCL and NKE gave a sentiment lift to the economic outlook as has some of the recent economic data. Today, inflation expectations implied in the 5 yr and 10 yr TIPS are breaking out to the highest level since early August 2008. The US 5 yr CDS is rising another 2 bps to 39 bps, up 7 bps in the past two weeks and is at the highest level since mid July.

Category: MacroNotes

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One Response to “What’s main catalyst for US Treasury selloff? A bit of everything?”

  1. Dave in SW Oregon says:

    It would have anything to do with the #1 creditor to the Indebted States of Amerika deciding to limit purchases to cash recycling of trade deficit dollars, would it?

    Inflation Risk at the front end of the curve is minimal. The same cannot be said to be true further out on the curve.

    Let’s see… $1.9 Trillion in new debt to float the current budget deficit and needing to roll $2.0 Trillion of short term paper from last year… Timmy has his work cut out for him…

    http://www.reuters.com/article/idUSTRE5BG1W620091217

    “The United States cannot force foreign governments to increase their holdings of Treasuries,” Zhu said, according to an audio recording of his remarks. “Double the holdings? It is definitely impossible.”

    “The U.S. current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the U.S. is supplying fewer dollars to the rest of the world,” he added.

    “The world does not have so much money to buy more U.S. Treasuries.”