People worried about the 10y yield going out of control should recognise some things.

by GabenFanClub

As I see it:

1) The yield is already starting to become attractive major foreign buyers. Japanese institutions are the biggest foreign buyers and are continuing to add more.

investing.com/news/economic-indicators/foreigners-raise-holdings-of-us-treasuries-for-second-month-in-january-data-2447322

2) Fear of China selling USTs to cause chaos needs to be seen in the right context. While technically this might be possible, consider the fact that China just had a record $ 100 Billion trade surplus two months vs the US.

To continue to keep their own currency competitive in this humongous inflow of $s, while simutaneously not buying USTs further, they inevitably have turned to buying JGBs. Going on for a while now, and also why the Japanese became the largest holders of USTs.

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www.cnbc.com/2020/10/14/why-china-is-buying-up-more-japanese-government-bonds.html

So what do the gigantosaurous Japanese pension funds do in this instance of massive inflows? They buy even more USTs, which ties back into point 1.

3) With the Fed continuing to buy monthly, a serious lack of treasuries is becoming a thing (believe it or not), expecially in the repo markets.

Overnight rates going -ve .4 for the 2 year, for instance. [On a related note, Fed’s “operation twist” might actually kill two birds with one stone. That is, restock the front end of the curve with enough bonds, and pull some out of the back end]

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4) Also, while “inflation expectations” have certainly gone up, we are yet to see proper inflation data (cpi, ppi, etc) reflect this. And given the recent Feb retail sale numbers turning out worse than expected, I’m not sure we are about to get some crazy inflation any time soon.

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