It was another gut-wrenching week in the rates markets that spilled over into the risk markets by week’s end despite some semi-positive signs for the war on inflation. The long end of the Treasury curve was shredded with the 10-year notes breaching key support levels multiple times. All the major world economies spent vast sums of borrowed money to stimulate, protect, and aid their citizens from Covid and the effects of the Ukraine War and now must fund a good amount of these borrowings with funding rates that have tripled. Everything seemed ok when Modern Monetary Theory went from a bad economist’s joke to, “Hmm, maybe there’s something to this MMT?” All was well as long as the world’s central banks printed trillions of currency out of thin air while keeping borrowing rates extraordinarily low with extraordinary monetary policies (zero or negative policy rates and quantitative easing). The two biggest borrowers, the USA and Japan, had the magic bullets. The US had the US Dollar, the world’s reserve currency while in Japan, 95% of the JGB market is owned domestically (so they are borrowing almost exclusively in their own currency). Now however with the G7 central bank’s taking their thumbs off the scale, the BOJ being the latest, the new question is, “Who’s gonna buy ALL THESE BONDS?”. We’ll start finding out very soon as the Treasury Department announced at the end of the week that they will be auctioning off $103 Billion 3-year, 10-year and 30-year notes and bonds this coming week. That is up from last month’s auction of $90 billion, a nice 14% increase.
We come in this morning with equities up small while Treasury yields continue heading up substantially. Currently, the 10-year note is once again breaching an important resistance (yield) level of 4.08%. As noted above, Treasury is auctioning off $103 billion 3-year, 10-year and 30-year notes and bonds, starting Tuesday. I guess we can say a decent yield concession has been given with last week’s rout so there’s hope. As a betting man, I am going to say that initially the auctions will be weak, but by week’s end, the lucky buyers will be in the green. On Thursday we get July CPI. Street economists are calling for continued cooling so stay tuned!
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