The benchmark 10 year Treasury yield Thursday in a counterintuitive move that should be positive for the stock market slid to a one-month low. Treasury yields, which moved opposite prices, had been rising, but they picked up momentum on Thursday after two early economic reports. One was March retail sales which jumped nearly 10%, and the other was weekly jobless claims, which dropped to 576,000- the lowest level since the early days of the pandemic. Strategists said the bond market was starting to price a peak for economic growth, expected to be as much as 10% this quarter. It also responded to the news of possible Japanese purchases of Treasurys as well as some concern about Covid. The 10 year yield fell as low as 1.53% before coming back to 1.57%. The market watches 10-year Treasury closely because it influences mortgage rates and other consumer and business loans. The price movement in the bond market is the opposite of what might normally be the case. Generally, very good news on the economy would have triggered a fear that the Federal Reserve would be comfortable raising interest rates, and yields would increase at higher levels or hold further. Stocks took the reports as investors took them as good news. Andy Brenner, Head of International Fixed Income at National Alliance Securities, said there are a number of reasons for the move to lower the yields, but he sees it as temporary. Later in the quarter, he said that I 'm not changing my view of higher yields. This is good for stocks for now. Some strategists said the bond market could be moving in a period in which it trades in a range rather than moving to new highs or moving sharply lower. Treasury yields had been a source of volatility for stocks before this month.
The gradual run-up in the 10 year market- from under 1% at the end of 2020 to a high of 1.77% at the end of March- jolted the stock market. Investors feared interest rates would keep rising, stealing investment dollars from stocks. Strategists said the move down amid strong data was viewed as a sign that the market was now looking at these statistics in the rearview mirror. The yields had been moving higher on expectations for a very strong second quarter and economy in general. Stimulus spending and the amount of debt required to pay for it also influenced the climb in yields. Number one, we 're delivering into high expectations for data. This was the way the market thinks about it If it's weak now, it 'll take from the next one; in the second quarter, we 're going to get peak fiscal stimulus spending and we 're going to get global macro strategies on the global fixed income team at Morgan Stanley Investment Management. He said the second quarter will be weaker, but it will be stronger than the third quarter. In terms of data, the rate of change is starting to go the other way. You start to say well about 1.7% 10 year yield is probably not a bad place to get long, Caron said. He said that volatility could mean less volatility, and that would be good for stocks and other assets. I think we can enter in a range as Treasury Market is notorious for not doing. Caron said that it can sit in a 20 basis point range for months. Brenner of National Alliance Securities said one reason yields are moving lower is concern about Johnson Johnson cases increasing and the trouble with the Covid vaccine slowing the path to Herd Immunity. He said that the news about the vaccine, which was stopped in six patients for blood clots, could raise overall concerns about the safety of vaccines, particularly among parts of the population that are already inclined to oppose them.
But Brenner said that's just one factor; I think you were able to get the 10 year level below 1.60% and that caused an acceleration, he said. Bonds are doing better because they see the economy as slowing down. Stocks are doing better because interest rates are going lower and the economic numbers, which are really good, are really good, Brenner said. He said hedge funds have also raised the yields lower after covering shorts in the area of 1.70% to 1.75%.
Another area for shorts is 1.345%, Brenner added. He said the 1.47% level should act as floor and strategists note that the 1.50% level is psychological support. But Brenner expects the period of yields to be shorter. The Covid stuff will get back on the back burner and the vaccines will take the lead of it. You had a window that allowed hedge funds to push the market, said Brenner. Ian Lyngen, head of the U.S. rates strategy at BMO, said another reason for the buying spree in Treasurys was prompted by a Japan Ministry of Finance report. If you look at the Ministry of Finance data, which came out overnight, we see that the week ended April 9th the Japanese bought more than$ 15 billion in overseas notes and bonds. The market is assuming that the vast majority of that was assigned to U.S. Treasurys, he said. This happened also at a time when the market was losing bearish steam, Lyngen said. We stopped trading strong data towards higher rates; this has helped rates simply drift lower. This week, Treasurys also passed another test, with a series of big auctions. The 10 year auction was on Monday, they bought$ 38 billion at 1.68%, Brenner said. You have a 14.5 basis point profit.