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“Monster Move” In Treasuries Unleashes Global Market Rout

A sea of red has greeted stock traders across the world this morning after what one analyst called “monster moves” in U.S. Treasury yields.

The bond rout that sent 10Y Treasury yields to the highest since May 2011 promoted by stronger than expected US economic data, and which accelerated after upbeat, hawkish comments from Fed Chair Jerome Powell after the close, spread into Asia and Europe on Thursday, spurring more gains for the dollar and triggering widespread declines in equities.

The catalyst for the selloff was the stronger than expected ADP private payrolls print and the near record print in the Services ISM survey which showed activity at its strongest since August 1997, sparking speculation the payrolls report on Friday could also surprise, with some suggesting a print as high as 500,000 was possible. Subsequent comments from Powell who said the economic outlook was “remarkably positive” and that rates might rise above “neutral” helped the 10Y yield climb to 3.18% on Wednesday. U.S. jobs data on Friday may stoke boosting expectations for rate hikes into 2019, with the jobless rate seen dropping to 3.8 percent, matching the lowest since 1969.

“Fixed income is the center of the financial world, and it’s hard to have a conversation without talking about the monster moves we saw in yesterday’s U.S. trade,” said Chris Weston head of research at Pepperstone Group. “It’s a very rare occurrence to see U.S. Treasuries undergo such a huge move.”

The selloff in 10Y Treasuries, which caught traders by surprise with both its velocity and magnitude, continued overnight on Thursday sending the yield on 10Y TSYs as high as 3.2325%, the steepest daily increase since the shock outcome of the U.S. presidential election in November 2016, before fading to catch its breath amid massive trading volumes.

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