Halyard’s Weekly Wrap – 10/29/21
The dour mood bond buyers have been in since early August reversed itself in a bout of short covering this week, with an especially sharp move on Wednesday. On that day alone, the 10-year Treasury note plunged 9 basis points. The fall in yield occurred despite mostly better than expected economic data, and was highlighted by an outstanding 5-year note auction. Bucking the trend of weaker, tailing auctions, the $61 billion 5-year note cleared 2.5 basis points below the at-auction yield. Moreover, Primary Dealers bought 17.9% of the auctioned amount, the third lowest result since 2004. The momentum was enough to carry the 30-year note below 2.00% for the first time since early September. That’s not to imply that we’ve turned bullish on the bond market. To the contrary, we think the price action this week was simply supply and demand coming back into balance after several bearish months.
Following on last week’s Bank of England announcement that a rate hike is imminent, the Bank of Canada followed suit this week and announced that they have ended their bond buying program effective immediately. In follow-up comments, the Central Bank hinted that they could begin raising rates as soon as April of next year. That makes them the second G-7 nation to back off of the pandemic-related emergency monetary policy, while the Federal Reserve continues to play “hide the ball” with U.S. monetary policy. Of course, the Fed is widely expected to announce its plan to taper open market purchases at next week’s Open Market Committee meeting. The intention has been discussed for close to six months, so we don’t expect that it will have much effect on the capital markets when it’s finally implemented.
Looking forward to next week, in addition the BOE and Fed meetings, investors will be watching the October jobs report for signs of an acceleration in hiring. The prior two reports were somewhat disappointing, with private payrolls coming in below expectations, despite a fall in the unemployment rate.
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