No breakthrough in 10-year Treasury yields this week it seems


Bond sellers are facing a bit of a knock as yields come falling back down on the week, slipping from a high of 1.38% on Tuesday to near 1.32% currently.

That is keeping a drag on yen pairs today with the softer risk sentiment in the market not really helping with the overall mood.

There is a slight sense of confusion in the market on what to make of the US non-farm payrolls miss from Friday and the indecision in Treasuries arguably best exemplifies that.

The reaction in the bond market was a bit peculiar to begin with and perhaps it is to do with the huge supply this week or perhaps the market was angling towards the Fed being more patient and allowing inflation to be more sustainable.

However, the argument now by the Fed is that the report isn't that bad and they are still on course to taper by year-end. So, that sort of takes away the latter narrative.

But amid a growing number of risks in the market, a dovish taper perhaps presents a more intricate detail for market participants to price in at this point.

Obviously, a step towards tapering is still the main point but how does it look against a backdrop of risks that could threaten the economic recovery?

Some of those risks include:

  • Disappointing economic data as supply chain disruptions, high inflation weigh
  • Equities having kept at frothy levels in recent weeks
  • Delta variant uncertainty still persisting for the most part
  • China financial market risks amid a wider crackdown on multiple sectors
  • Contagion risks stemming from Evergrande

It's a tough one to try and put all of that together and then make an argument that it is "straightforward" for policymakers to remove support for the economy.

If anything, that all points to the market being rather vulnerable but if the Fed doesn't take a step towards tapering now, when will it ever be able to do so?

In any case, the market looks to be struggling to sort all of this out and the latest action in Treasuries says that there are still more weeks before getting a real answer.