Demand for Treasuries Unabated Despite Low Yields

As the 10 year Treasury yield hit 1.69% last week and has been trading in the 1.70%-1.78% range since, today’s $20 Billion auction demand was surprisingly robust. The sluggish global economy and expanding US economy are pulling expectations in opposite directions. Recent Fed statements show increased mentions of global growth, causing investors to speculate whether the Fed will raise rates if global economic conditions don’t improve. Foreign central banks were very active in today’s auction. Considering the German 10 year bond is yielding  0.13% and the Japanese 10 year is at a negative yield, a 1.75% US 10 year is a “bargain”. US Economy: Both wholesale prices and retail sales fell unexpectedly in March, contributing to the demand for Treasuries. However hedge funds raised their bets on rising yields by shorting treasuries more than at any time since November. Fund Managers are looking at reports showing rising employment and some upward pressure on wages, no risk of deflation and inflation possibly firming up.   Stay Tuned.   David R. Pascale, Jr.