Treasuries Soar Most Since Post-Brexit Vote on Market Volatility

  • Yields sink as investors step back from crowded trades
  • Labor Department set to release December payrolls data Friday

'Still Great Deal of Downside Protection in Bonds'

Treasuries rallied across the curve, driving down benchmark yields by the most since the days after the June Brexit vote, as traders across financial markets backed away from crowded bets.

The benchmark 10-year U.S. yield plunged nine basis points to 2.35 percent at 4:14 p.m. in New York, touching the lowest level since Dec. 8, according to Bloomberg Bond Trader data. It’s set for the biggest decline since June 27. The 10-year break-even rate, a market measure of inflation expectations, fell from close to the highest level since 2014.

Across financial markets, trends snapped Thursday as investors weighed the risk of a lackluster payrolls report Friday and the prospect that trades based on Donald Trump’s impending presidency had gone too far. Data from the ADP Research Institute on Thursday indicated companies added fewer jobs in December than forecast. The figures come a day before the Labor Department releases its monthly payrolls report. 

“A bunch of the widely predicted trades for this year are all being broken at the same time, with oil going lower, investment-grade corporates widening out, TIPS break-evens tightening, and then rates rallying as a result,” said Mike Lorizio, a Boston-based senior trader at Manulife Asset Management, which oversees about $343 billion. “Some key levels being broken just inspired further buying.”

  • In other markets, the dollar tumbled, while the S&P 500 retreated for the first time in 2017
  • The move in Treasuries was exacerbated by extended short positioning in futures, traders said, and marked by heavy futures volumes
    • CFTC Commitments of Traders data for the week ended Dec. 27 showed the largest non-commercial net shorts in five-year and 10-year futures on record
  • Into the 3 p.m. EST futures close, 10-year volume was about 150% of the 30-day average
  • Fed speeches resume Friday with Evans, Lacker and Kaplan
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