In the US, if the 10yr wanted an excuse to break for 4%, and maybe break below, it’s had some excellent opportunity Tuesday (jobs revisions) and Wednesday (core PPI at -0.1% month-on-month), plus, evidence from the PPI report that CPI may be blunted by corporates taking some of the hit (for now) on tariffs. We then had a 10yr auction that went very well, helping to validate the price action that took the 10yr to sub-4.1%.
Ahead, we continue to anticipate an attack on 4% for the 10yr yield, and likely a break below. But, we also view any such move as an overshoot to the downside. We maintain the view that neutral for the 10yr yield is in the 4.25% to 4.5% area, and the current inflation environment (notwithstanding PPI, consumer inflation is still in the 3% area, and still has upside potential) suggests we should or could trend back up there (throw in the still elevated fiscal deficit too).
Thursday sees the 30yr auction. The 10yr was helped by a concession build versus events. The 30yr may not get the same, which might make it more prone to tail. But even if it did, the yield validation in the 10yr area is a big positive from this week’s auctions so far.