Treasuries Moving Up (Again). Is this time “for real”?

The 10 year T yield spiked up to 2.41% today, the highest level since March.   Factors include:  (1) Recent Fed speeches indicate that they are “on track” for an increase in June and another increase before year end.  Also, there are more indications of shrinking the Fed balance sheet this year, increasing the supply of bonds in the private marketplace; (2) Supply/Demand dynamics – the Treasury is auctioning about $190 billion in treasuries and bidding was weaker than in recent auctions; (3) Inflation-Fed officials and others are dismissing recent weak inflation reports as seasonal in anticipation of inflation (finally) returning above 2.0%.  Also oil prices increased with their largest one day gain since December; (4) Washington – investors seem to be unconcerned with unpredictability stemming from the firing of FBI Director Comey yesterday.   The eruption of inter-party hostility after the dismissal can be interpreted as increasing the difficulty of passing major legislation (taxes, infrastructure, etc).   So far, that risk doesn’t seem to be priced in. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.