Treasuries are under meaningful pressure as the 1.624% yield peak in 10s comes into range. There was no definitive trigger other than the usual suspects of reopening optimism, supply indigestion, and SLR expiration jitters. To this latter concern, the most recent primary dealer holdings data as of March 3rd revealed a record $64.7Bn decline in Treasury holdings to $185.8 bn. It’s worth noting that -$23.5 bn of this was in the bill sector and -$3.7 bn in floating rate notes; that said, notes and bonds were also reduced. However, given the preceding spike in yields and the fact these figures are reported in market value rather than par terms, the drop reflects more than simply dealers aggressively shedding Treasuries as the extension of SLR became less certain. Nonetheless, dealers selling into the downtrade is consistent with the choppy price action seen during the last several weeks and concerns that ballooning net issuance could be problematic for liquidity conditions; particularly in the event the preferential treatment for Treasuries is lost.
It’s with this backdrop that today’s trading session takes on particular relevance in gauging investor sentiment as the weekend approaches. While last week saw a meaningful challenge to the ‘Friday afternoon bears’ pattern which has been evident throughout much of this year, as we ponder the information on offer, there is little to dissuade the drift higher in yields aside from residual price action in other markets. PPI and the University of Michigan’s confidence figures won’t meaningfully influence the outlook for the recovery and as such we anticipate the reports will be largely ignored in favor of anxiously watching the response in risk assets as the path of least resistance appears toward higher yields as the US comes online.