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10 Year Yields Plunge: A Very Confused Wall Street Tries To Predict What Happens Next

There was some serious fireworks in the Treasury market overnight, and especially just until the PBOC decided to intervene in the market to undo at least some of the devaluation it caused earlier in the trading session. To wit, at one point the yield on the 10Y tumbled as low at 2.05% before levitating higher even as across the pond Germany's 2 Year bond dropped to a fresh record low.

 

So what happens next? Well, it's not like the sellside is very useful in actually providing actionable advice when something not in the script happens, but for the record here, courtesy of Bloomberg, is what the 'experts' are saying:

FTN (Jim Vogel):

  • “On paper, the last two weeks resemble the panicked rally of January. It will take several days to assess each bond market component for a full comparison, but that’s the headline conclusion,”
  • “The potential difference is that even at the worst of the oil collapse this winter, many global investors kept faith that central bank easing would provide sufficient stimulus for a global turnaround in 2H 2015”
  • “On a risk-adjusted look ahead at the next two months, a bull steepener this week is unlikely to hold”

BMO (Neil Bouhan):

  • “If the Chinese currency revaluations have the UST market headed in a bullish direction, then we surmise it’s largely the result of the uncertainty behind the PBOC’s medium-term goals”
  • A good JOLTS report “will help push yields back toward the pre-CNY fix levels, which is around 2.14% in 10s”

Credit Agricole (David Keeble):

  • “This afternoon, we would sell the 30Y area vs 10s because we do not like the 30Y auction”
  • “It will benefit least from the large coupon and redemption payments,” has “no strong buyer outside of the domestic mutual funds, and dealers already have USD14n of the sector”

CRT (David Ader):

  • “Question now remains” if this “was a one-off move as the PBOC appears to be suggesting, or will the currency be allowed to depreciate further in the near- term”
  • “This added to the bullish underpinnings for the market” is likely to “limit any significant back-up in yields for the time being”

ED&F Man (Tom di Galoma):

  • “The focus today will be the demand for the 10yr note auction at 1pm. The market at this point is overbought and would suggest the 10yrs will sell off prior to the auction”

Marty Mitchell (independent):

  • “We think that the 10yr reached an extreme at 2.04% overnight and, while this level could very well be tested again, the market feels like it is getting overextended up at these levels”
  • “We expect that a near-term high will be put in somewhere between 2.04% and 1.99%, but it all hinges on whether more turmoil develops around China’s devaluation or if things can stabilize”

RBS (Bill O’Donnell):

  • “The disinflationary aspects of this currency depreciation will make the pace of rate hikes all the more benign,” and “if the rumors are true that there is internal pressure for a 10% devaluation of the Yuan by year-end, it could be very difficult for the Fed to reach its 2% target rate over the medium term”

TD (Gennadiy Goldberg):

  • “September rate hike was never a slam dunk decision for the Fed, and the greatest immediate impact of CNY depreciation on the Fed would come through the volatility channel”
  • “If global markets continue to be rocked by ongoing depreciation over the next several weeks, the Fed could certainly consider the impact of adding fuel to the fire with a September rate hike”

Then again, considering all of these strategists were 101% confident the 10Y would have a 3% before a 1% handle, feel free to ignore everything they just said.