It undid more than the entire haven trade that had started on Thursday and blew through the hot PPI inflation on Friday.
By Wolf Richter for WOLF STREET.
The 10-year US Treasury yield spiked by 14 basis points to 4.066% at the moment, from 3.925% in overnight trading amid massive volatility.
It thereby backtracked on more than the entire plunge from 4.05% early Thursday, to 3.95% at the close on Friday, despite a hot PPI reading Friday morning, to below 3.93% in overnight trading on Sunday, amid massive but short-lived demand, after the US and Israel had started bombing Iran over the weekend (hourly chart via Investing.com).
Market memes flipflopped vigorously from searching for a haven, as stocks were getting rattled, and damn the inflation torpedoes that the hot services PPI on Friday warned about, and searching for more haven after the Iran bombing had started, to suddenly worrying about these damned inflation torpedoes all over again that could be made worse by the consequences of the Iran war on energy prices?
Rising yields means falling bond prices; falling yields means rising bond prices. That may not be a big deal for regular bond holders, especially those intending to hold to maturity, when they get paid face value.
But much of the Treasury market is tangled up in highly leveraged complex trades, and those sudden moves make substantial ripples.
Markets do what they do because they do it. Why exactly they ignored the hot PPI inflation reading on Friday, and went all in on the haven trade, then flipflopped like this today on the haven trade and refocused on inflation, or whatever, remains subject of speculation.
One thing is for sure: at these below 4% 10-year Treasury yields, demand vanished, and yields are having to move higher today to find buyers. And they could of course re-flipflop for whatever reason. But these still very low yields – amid rising inflation and massive supply issues facing the Treasury market – are mightily unappetizing to this bond investor.
And look what that did to mortgage rates today: The average 30-year fixed mortgage rate spiked by 13 basis points this morning from Friday, to 6.12%, according to Mortgage News Daily.
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This is a return to normalcy from the bizarre moves last week. Higher PPI and possibly higher oil prices mean higher inflation. Iran is a paper tiger. Still a tiger and must be put down. But after most of their missiles have been fired and their launch sites eliminated, Iran will have nothing left to back up its bluster. Strait of Hormuz will be open within a month. But there is still that PPI to worry bond traders. Kudos to the bond market for putting up with only a few days of panic.
War is the fastest way to destroy a fiat currency that I know of.
Iran’s currency has been getting destroyed for many years day after day. The Iranian rial has collapsed by 98% or so against the USD in just the last 10 years.
But the dollar jumped today. And the DXY dollar index is back where it had been 50 years ago.
MW: Bonds head for biggest selloff in 9 months as Iran conflict sparks unusual Treasury moves
Is there anything that isn’t inversely related to interest rates?
Palantir, Lockheed and other defense stocks are rising on heels of Iran conflict