There’s Another Culprit for Treasury Rout Besides Japan and China
- Bear steepener accelerated by Portugal, Italy auctions: BofA
- Sovereign supply vs ECB taper source of ongoing pressure: TD
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Treasury traders assigning blame to Japanese monetary shifts and Chinese bond preferences for this week’s selloff may be overlooking a longer-term threat: supply from European governments drunk on quantitative easing.
Strategists at Bank of America Corp. and TD Securities Inc. cite hefty regional issuance from the likes of Italy and Portugal this week as a catalyst in the abrupt steepening of the U.S. yield curve. Even though the government auctions went off smoothly, some say they helped trigger a steeper U.S. curve, as governments are front-loading issuance while the European Central Bank slows purchases.