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The 10-Year Treasury Has Had its Longest Slide in Three Months.

The 10-year treasury has had its longest slide in three months.  The behemoth money management firm Blackrock stated yesterday an improving labor market and signs of inflation argue for the Federal Reserve to boost borrowing costs.

Yesterday I referenced a Fed study stating that investors are “less uncertain” regarding as to when the central bank will increase rates as compared to the Federal Reserve itself, an oxymoronic position.

Is this a pushback on this view?

The headlines will soon be filled with banter and speculation about the outcome of the September 16-17 Fed meeting.

This nervousness is reflected in the three year Treasury note yield which rose to the highest level since July 31.  Moreover the yield for the $27 billion 3 year note auction yesterday rose to the highest since April 2011.

To refresh all, the current down leg on yields commenced in February/March 2011.  What is this suggesting?  Is or has the trend turned?

If yields on the 10-year Treasury rose to April 2011 levels, the 10 –year would yield 3.58% or 108 basis points higher than yesterday’s close.  If this were to occur, according to Bloomberg the 10-year would have a negative six month total return of almost 15% and one would have to hold this bond until May 2017 to breakeven on a total return basis.


Because of monetary uncertainty, the Dow declined about 100 points.  Is this just needed profit taking?

I reiterate barring any major externality the odds of any substantial decline—defined as greater than 10%-12%–are low because of the massive liquidity within the financial system.

There is little on today’s economic calendar other than wholesale inventory data which historically has little market impact.

Last night the foreign markets were mixed.  London was up 0.06%, Paris down 0.02% and Frankfurt down 0.09%.  Japan was up 0.25% and Hang Sang down 1.93%.

The Dow should open flat. Will the Fed inject some uncertainty into the markets?  The 10-year is off 5/32 to yield 2.52%.


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Ken Engelke

Chief Economic Strategist Managing Director

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