As signals in the bond market go, yesterday’s was fairly lucid. Translating bondspeak to street language, the trading in the 10-year Treasury on Thursday might be interpreted thus: Ahhhhhhhhhhh!
As the chart below shows, the 10-year yield jumped more than a little, closing at roughly 5.1%. That’s the first time the benchmark Treasury has been swimming in those statistical waters since last July.
Source: BarChart.com
What caused the revaluation in the price of money? In broad terms, it’s clear that risk is being repriced. What’s triggered this repricing? Liquidity invariably turns up as a suspect. Mr. Liquidity is innocent till proven guilty, of course. But for the moment, he’s been arrested and awaits arraignment.
Meantime, the court of public opinion will survey the evidence until a formal decision arrives. Exhibit A is the supply of liquidity in the global economy. But most standards, it’s in amply supply, and then some. But for every action there’s a reaction, which may or may not arrive in a timely fashion. Eventually, however, liquidity will have an impact and the debate about what comes next will be done.