US 10-year Treasury yields finished the day 23 basis points higher to 3.92% but what has me most worried is the final 4 bps on the day. There was a late drop and that has me worried about liquidations or someone blowing up.
You would expect to see some rebalancing flows into bonds this late in the month/quarter but the opposite is happening. At best that means fund redemptions but it's all worrisome and we're at the point now where rumors about the downfall of firms start to spread.
By the same token, these are supposed to be the safest asset in the world and those who have to mark to market are getting crushed.
Here's the take from BMO, who says:
" The most eye-catching aspect of Monday’s repricing was the impetus – or specifically the lack thereof as it was only the ongoing moves in gilts that received any fundamental credit for pressing the repricing. Said differently, thin liquidity and a wholesale disinterest in catching the falling knife leaves us reluctant to fade the move just yet. While risk assets came under further pressure, we’ve not yet seen the flight to quality feedback loop we ultimately expect will cap the increase in yields as the fallout of 4% becomes more apparent."
They also warn that there's a 5-year auction tomorrow and four of the past five have tailed.