A Monumental Sell-off in Treasury, Kashkari’s Astronomic Observations, and Poor Election Appearances – Berg Report

The article discusses a significant two-day drop in Treasury bonds that some major financial news outlets have labeled as “epic.” However, the author expresses skepticism about this characterization, suggesting that the term may be a bit exaggerated. This skepticism arises from the fact that large fluctuations in bond yields have become something of a norm in the 2020s, making the recent downturn seem less remarkable in context.

The piece further notes the complexity of identifying the precise causes behind the slump in Treasurys. Factors such as macroeconomic conditions and statements from the Federal Reserve (Fedspeak) appear to be intertwined with supply overhang issues, making it difficult to pinpoint a singular cause. The article suggests that the recent jobs report may have served as a convenient justification for markets to anticipate and make allowances for the week’s auctions.

The term “supply overhang” in this context refers to a situation where the supply of bonds exceeds demand, leading to a drop in bond prices. The jobs report, a monthly update on the state of the U.S. labor market, can impact bond markets as it influences investor expectations about future economic performance and thus, demand for bonds.

Moreover, Fedspeak, or comments from Federal Reserve officials, can also significantly influence bond markets. These comments often provide insights into the future direction of monetary policy, which affects interest rates and inflation – two key considerations for bond investors.

Therefore, while the two-day drop in Treasury bonds may have been significant, the author suggests it may not have been as ‘epic’ as some outlets suggest. Instead, it may be more accurate to view the event as a reflection of the ongoing volatility and intricacy of the bond market in the 2020s, influenced by a mixture of macroeconomic factors, Federal Reserve commentary, and supply-demand dynamics.

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