US 10-year yields are down 4 basis points to 2.80%.
The market tried to push yields higher after non-farm payrolls but quickly reversed after hitting 2.93%.
Demand at a three-year auction this afternoon was also strong, yielding 0.631% compared to 0.637% in the WI market.
Falling yields after a strong employment market doesn’t make sense on a number of levels. It increases the chance of a taper and decreases the need for safety. So what’s happening?
I look to year end. The outperformance in stocks this year and underperformance in bonds is leading to portfolio rebalancing. Another factor is non-existent inflation and, perhaps, even fears of deflation. So while a taper could come in December, rates are pinned down by ZIRP.
Could a Fed taper on Dec 18 really be a non-event? I doubt it.
