10Y Treasurys Suddenly Tumble Amid Rate-Lock Curve Selloff

Having traded near the multi-month low of 2.63% for much of the overnight session, and within the descending triangle observed over the past 6 weeks where a breakout either higher or lower appears imminent...

... the 10Y Treasury has suddenly seen a sharp selloff, with yields spiking by over 4bps to over 2.6734%, in a move that has dragged the entire curve higher in parallel.

The move has so far failed to have an impact on stocks, which are modestly lower in early trading, in line with pre-market expectations.

While there has been no specific catalyst behind the move, traders ascribe the move to two potential drivers: one is the wider sell-off across the Atlantic, where bunds and gilts have been weighing notably across the back-end of the curve, with Bloomberg noting a sudden weakness across core European fixed-income and a jump in bund futures volume on breach of earlier lows, suggesting this was an algo-driven stop-led activity.

As Bloomberg notes, there were around 12k RXH9 contracts traded in the drop from 166.14 to 166.06, a move that breached the earlier 166.10 lows; contract bottomed at 166.05 as 10-year Germany yields topped above 13bp. Total 35k RXH9 traded over 5-minute period between 166.23 to 166.05 lows.

A second, and arguably more relevant reason for the move, is a jump in rate locks as a result of a ramp up in IG issuance today with no less than 8 deals slated, of which at least 6 have 10-and/or 30-year tenors, which are also weighing on the long-end.

The question now is whether the selloff will persist beyond the 2.680% trendline, which has been set by the descending higher in the past month, in which case the much anticipated move higher in yields which Credit Suisse noted earlier, may finally be here.

This is turn bring us to the point made by Bloomberg commentator Richard Breslow, who earlier today said that "the most interesting chart to watch today isn’t whether 2,800 and change will hold or not in the S&P 500. It isn’t about deciding if the Dollar Index is setting up for a probe lower. Although both are well worth following. For my money, it is the much discussed, and now highly relevant, descending triangle from the end of January in 10-year Treasury yields. The bottom of the formation comes in at 2.62%, just below the overnight low. A break will get a lot of people talking about having another look at the January lows. Quite a compelling situation as we head into GDP and PCE over the balance of the week where it seems the whisper numbers keep slipping lower. This should be something worthy of being high up on your priority list."