A healthy midweek five-year auction rippled across the maturity spectrum turning 10 and 30-year yields lower in spite of a particularly robust new home sales report earlier. While housing sales were apparently not hampered by the weather, investors continue to feel that the recent run of dry data has been adversely impacted. More optimistic equity buyers have pursued new all-time highs on hopes that the snap back, hopefully during the spring, will lift investment, consumption and employment. The propensity to discount the brighter economy is better witnessed across the equity arena than it is across the fixed income field. Bond bears remain frustrated as yields stubbornly refuse to march any higher in response to the straight line tapering on behalf of the Federal Reserve.
And why should they when the data doesn’t support it? Just now bond bears must be extremely depressed by the fact that even when the occasional data piece shows resilient demand, yields refuse to budge higher. Even lofty equity prices are insufficient to topple bonds. And so when afternoon selling pressure across equities occurs, which is the order of the day Wednesday, bonds seem in even stronger demand – anticipated economic rebound notwithstanding. Wednesday’s five-year auction found especially strong demand amongst foreign buyers to send the yield down to 1.48%. Gains were equally healthy looking across the curve with the 10-year yield also falling by 3bps to 2.67% while at the 30-year, the yield slid 2.5bps to stand at 3.63%
Chart – 10-and 30-year yields grind lower