MORNING BID – European Deflation

Aug 28, 2014 14:16 UTC

Never say the Europeans aren’t cautious. The dollar has been on a roll of late, in part because of the market’s growing expectation for more stimulus from the European Central Bank before long that would include some kind of larger-scale quantitative easing program after a speech last week from Mario Draghi that European markets seem to still be reacting to several days later. Reuters, however, reported that the ECB isn’t quite likely to do move quite so fast (heard this one before) and that took some of the wind out of the dollar’s sails and boosted the euro a bit.

Some of the move in the euro will depend on the trend in European yields, where everything is going down – German Bunds continue to make their way rapidly toward zero, and Bund futures remain in an overwhelming bullish trend, per data from Bank of America-Merrill Lynch. Analysts there also anticipate the dollar is going to experience some kind of medium-term correction – but remains in rally mode otherwise. There’s a headwind there for equities from that – rising greenback makes U.S. goods more expensive, but the gains are still only in earlier stages, and haven’t pushed into territory that would otherwise indicate surprising strength that we haven’t seen in some time.

What’s happening in part is that there’s been a definitive change in how bond markets are viewed – even the peripheral markets like Spain and Italy are less favorable as investments when compared with the United States; Merrill analysts foresee more of a move into U.S. fixed income assets after several months of seeing European funds garner strong inflows (the count is $158 billion to $86 billion, favor the Europeans so far this year). So what’s going on here? Many investors have been perpetually frightened of “catching a falling knife,” and the number of big-name bond managers who have shied away from Treasuries on the assumption that the Fed was going to declare the party over in due course are a great many. “The perceived tail risk associated with Eurozone bonds is lower than that for U.S. bonds,” they write.

Then again, this year has been a class study in foiled expectations, particularly in the bond market. Rates have remained stubbornly low; the bullish investors in the government market have reaped big rewards, and even if the U.S. dollar creeps higher, the ongoing interest out of pension funds for higher yielding credit will continue to pressure yields. And Merrill sees more buying in the bond market from foreigners, an increasing percentage of that from Europe and other investors. That should again benefit the dollar, which is expected to stay near where it is.

MORNING BID – Down in the Jackson Hole

Aug 15, 2014 12:43 UTC

The markets ease into a traditionally slow period with not much to look forward to other than the Federal Reserve’s Jackson Hole conference due next week, where the highlight, naturally, will be anything Janet Yellen says regarding the state of the labor markets. The chances of the Fed signaling a new shift when it comes to policy are slim – Yellen has proved to be a cautious speaker thus far, interested in furthering Ben Bernanke’s way of telegraphing as much as possible when it comes to policy alterations, and Yellen is more so, her “six months” comment from a few months ago notwithstanding. As Jonathan Spicer and Howard Schneider reported a few days ago, Yellen is much more interested in fighting an inflation war than dealing with a persistent deflationary/lousy economic environment to dominate the headlines, so the expectation should be for lower rates for longer, and not to expect a lot of surprises out of Wyoming next week.

Goldman Sachs economists not that Yellen had sounded a bit more positive on the labor market in July, but even still their belief when it comes to the slack that exists in the jobs market is still too great to bear much more than the end of quantitative easing/bond buying and perhaps a move to a couple of small rate increases around the middle of next year that, well, won’t hurt too much given the Fed’s policy rate still sits between 0 and 25 basis points. The forecasts from Reuters most recently put the first rate hike somewhere in the April to June range, which fluctuates depending on the strength of the economic figures.

The markets still haven’t entirely shed the notion that a more permissive Fed is a good thing, and so bad-is-good reactions still are more frequent than one might want. Still, Goldman notes that various labor force indicators still point to a jobs market operating far below capacity or the level of strength that the Fed wants. Some aspects have improved – job openings are rising, which points to desire for more employees, and payroll growth compared with potential labor force growth has been solid, but the hiring rate, quits rate, wage growth figures and participation rate still remain on the low side – so there’s just not the kind of job growth that will push everything else forward too. Morgan Stanley analysts recently noted that the University of Michigan’s final survey of consumers still finds ordinary folk not that enthused about spending in part because of labor-market weakness.

How the market positions headed into the last part of the year also depends on the Fed. Merrill Lynch data shows a net 78 percent of investors polled in one of their surveys expect higher rates in the next 12 months, the highest level since 2011, which is likely to affect positioning and result in more curve-flattening activity.

(This column will be on hiatus for a week next week)

MORNING BID – Minute by minutes

Jul 9, 2014 13:44 UTC

The bond market remains pretty much tethered to the 2.50 percent to 2.60 percent range that’s prevailed for the 10-year note for quite some time now, with the primary catalyst being today’s release of the Federal Reserve’s minutes from its most recent meeting. The relevant data that investors are probably paying most attention to – the jobs report last week, the JOLTS jobs survey, shows some more things that is meant to keep the Fed engaged rather than moving toward an imminent increase in rates. The quit rate – the rate at which people leave jobs for others – is still historically a bit on the low side, not at a level that would make the Fed more comfortable that the kind of labor-market dynamism needed for the Fed to shift to raising interest rates. Fact is, the central bank just isn’t there yet.

And with that in mind, that means those investors clamoring for higher rates are probably going to continue to see their expectations unmet for a longer period of time, and with sovereign buyers from Europe and Japan wandering outside those halls, there’s an ongoing bid in the market that continues to thwart short-sellers who are just waiting for that right moment to bet against the bond market. That’s been a lonely trade of late – or rather, a popular trade, just a big loser as trades go.

Players in the markets may also be looking to see whether the Fed discusses the other exit strategies it has — reverse repos and the like — making that another thing to watch for in the late release. Dealers have been divided on whether the Fed will raise rates merely to 25 basis points or direct to 50 — our most recent polls are split on this, but a move to 50 would probably assuage a few of those who think the Fed is getting behind the curve.

Earnings play a factor in this equation as well however. The decline in earnings estimates has actually been subdued in the second quarter, compared with the first quarter, according to Goldman Sachs, which suggests a pickup in activity after the weak first quarter. Earnings don’t really get going for another few days, but the signs of growth will be what investors worried about valuations are looking for. The current valuation situation, as Chuck Mikolajzcak wrote in a story yesterday, points to some measures that are worrisome – the Case Shiller PE figure, for instance – while a couple of others like operating P/E, suggest only slightly expensive levels. With more strategists starting to worry of a correction, earnings would go a long way toward supporting equities.

MORNING BID – Crypto-sale of the Century

Jul 1, 2014 13:38 UTC

Details on the sale of about 30,000 bitcoin have been spare, but what can be inferred by reading through the lines is that the sale of about $18 million went a lot better than many expected – particularly those who expected to get the coins on the cheap somehow. The prevailing market rate at the end of Monday was about $639, according to Coindesk, currently the leader in the pricing world, and the chatter trickling out was that the unsuccessful bidders – including hedge fund Pantera and SecondMarket’s Barry Silber, who put together a consortium of more than 40 bidders – aimed too low in one of those “Price is Right” moves but without the warmth of Bob Barker to confront you when you lose on these things.

With that in mind the speculation on just where the auction ended up can run wild – did it go for $650? $700 for the lot? Perhaps; those commenting on twitter and to Reuters in a story from Gertrude Chavez and Nate Raymond on Monday were suggesting that there were plenty of newer bidders in the process, firms that have been just getting going in the bitcoin world and probably wouldn’t mind to get their hands on a large stake even at a somewhat elevated price.

Either way, it points to the possibility of more sales from the U.S. Marshals, who are still hanging onto another 144,000 bitcoin that it obtained off a hard drive from Ross Ulbricht, who is accused of running the Silk Road online drug ring, which was shut down last year. (Keep in mind of course the Marshals Service hasn’t released any results.)

Whatever its inauspicious beginnings, that the USMS was able to stage such a successful sale of the crypto-currency means the product has been given real legitimacy as it sold with substantial demand, and leads to more sales later. So there’s only so many times one can say this is fake before one has to think somewhat differently.

Bitcoin is down about 16 percent on the year, so it’s been a loser in a year where almost everything else has gone well in the first half. In a somewhat uncommon fashion, both stocks and bonds, along with gold and oil, are all higher on the year. YTD asset performance

That’s a surprise in both the equity and debt markets, where higher interest rates were supposed to sap investor enthusiasm for bonds and reduce the attractiveness of stocks as well. But markets are funny and instead the second half begins with the S&P not far from a record and bond prices surging (high yield bonds, notably, were at their tightest rates against U.S. Treasuries in 2007). We’ll be looking at this a bit later, but suffice to say some people in the credit world are starting to get somewhat nervous about this, believing that the rally has come far enough.

With that there’s some adjustment going on among big credit managers who see the opportunities in riskier credit waning. Fund flows remain strong, though, so what’s a person to do? Either way, the excesses that many discuss when it comes to credit don’t seem to quite be there yet – but they are starting to move closer. The Fed remains very much in the game, but there are plenty of strategists who believe it won’t be more than a few months before they start to pull back, which means a rough ride for almost everyone else.

MORNING BID – The Beautiful Game, and Less Beautiful Markets

Jun 10, 2014 12:53 UTC

In two days the World Cup will open in Brazil, with the home country generally believed to be the favorite once again. There are others better placed to look at the odds for every country, though at least this year will avoid the spectacle of seeing thousands of Brazilians hang around after their team has been vanquished (the Brazilians tend to book hotels through the end, assuming they’ll be there in the final – hence lots of them out all night in Berlin in 2006 when it was Italy and France going for the cup). For the short-term investing crowd, there’s some reason to bet on the winner too – Goldman Sachs, in a report so detailed it makes us wonder about their obsessiveness with the game – points out that the winners tend to outperform in the stock market after the final.

“On average, the victor outperforms the global market by 3.5% in the first month – a meaningful amount, although the outperformance fades significantly after three months,” they wrote in a 67-page bit on the World Cup and economics. “But sentiment can only take you so far, in markets at least – the winning nation doesn’t tend to hold on to its gains and, on average, sees its stock market underperform by around 4% on average over the year following the final.” Host nations also tend to see outperformance too – about 2.7 percent for the month following, though, again, the glow of hosting a whole load of 1-0 matches tends to fade over time, leaving investors with other things on their minds, like fundamentals, and maybe all the debt the host took on to build a truckload of stadiums.

A man walks near the construction site for the light-rail that was planned to be ready in time for the 2014 World Cup, in Fortaleza. REUTERS/Davi Pinheiro/Files

A man walks near the construction site for the light-rail that was planned to be ready in time for the 2014 World Cup, in Fortaleza. REUTERS/Davi Pinheiro/Files

The problem for the Brazilians at this time is the country’s weak growth: between 2011-2014 the country’s average real annual growth is about 2 percent, with inflation of about 6 percent. Brazil has elections coming, so that positive glow may fade shortly after the cup ends and investors look to the possible re-election of President Dilma Rousseff in October. Her polling figures have been fading, which has helped the equity market, but Goldman notes that the country has challenges that would stymie the best goalkeeper: the need to disinflate the economy, improve domestic investment sentiment and do a lot of structural reforms. The country has not gotten the infrastructure that it was promised in time for the World Cup while building a whole load of stadiums for the FIFA tournament. Brazil’s best efforts will be watched, especially as Rio de Janeiro hosts the Summer Olympics in 2016.

As for the United States, this nation is once again trapped in the so-called Group of Death in its first bracket, along with powerful opponents Portugal, Germany, and Ghana, not a patsy among them. Reuters Americas markets chief Dan Burns crunched a bit of numbers just to show that all three have had better performing bond markets of late when compared with the U.S. Yields in Germany have been sharply falling, and currently yield about 1.25 percentage points less than Treasuries. Portugal, meanwhile, sports the smallest differential between its 10-year note than the U.S. 10-year in four years, and they’re up more than 4.4 percent this year, compared with a 3.3 percent move by the United States. Lastly, the West African nation of Ghana has a spread of about 540 basis points, according to JP Morgan data – tightest it’s been to developed sovereign nations since January.

So think about that while you’re waiting for somebody to score a goal, at some point.

MORNING BID – Be not afraid of more bond-market rallies

Jun 6, 2014 13:38 UTC

After the world’s most boring jobs report in history (seriously, misses consensus by 1,000, unemployment and wage growth in-line with expectations, and revisions over the last two months amount to a total decline of 6,000 jobs, which is a pittance), the bond market is catching a bit of a bid again. That shouldn’t be a surprise given the way this market is still taking its cues from the European bond market, which is soaring on what would otherwise be a quiet Friday. (Those of you who read Richard Leong’s story yesterday noting the likely rally in bonds post-jobs would have been all over this – just sayin’.)

It’s not going to be long before Spain’s 10-year yield falls through the U.S. 10-year yield – the spread has narrowed to about 6-7 basis points and at one point was around 3 basis points before the jobs figures. Even though the in-line figures could argue for higher rates, the report doesn’t change the consensus on the economy all that much and allows fixed income to concentrate on supply and relative valuation issues – and those point to yields remaining under pressure. Mark Grant of Southwest Securities lays it out well on a lot of issues in a comment this morning, but very specifically, he points out that “money from Asia and the Middle East is going to come pouring into the American market because of the yields here versus all of Europe. When the French 5 year yield is 304% less than the American one something is going to give and the ECB will not permit that answer to be a higher French yield.”

Lower European yields are pressuring U.S. yields.

Lower European yields are pressuring U.S. yields.

Supply and demand remains part of the equation as well. Headed into this week, issuance of U.S. debt was down 14 percent from this time a year ago and overall worldwide debt issuance was down 5 percent; US corporate debt issuance has been relatively steady, down 2 percent from this time a year ago. Couple that with the big run for yields coming from banking institutions around the world, other funds and insurance institutions worldwide, and U.S. private pension funds, and that imbalance is also contributing to an ongoing bull move in the bond market. (BofA-Merrill notes that first-quarter private pension fund purchases did slow from the second half of 2013.)

Treasury issuance is down, municipal bond issuance has declined, and the Federal Reserve is still holding a lot of debt overall. “Higher prices and falling yields can be caused by a number of things and this time around the cause is not a financial debacle,” Grant writes, and it’s hard to disagree on this one. Merrill notes that for the year-to-date, fund flows into all fixed income come to about $55.6 billion, about on a par with the $58 billion into equities – so the “everything is awesome” rally continues.

Where’s that leave other markets? Well, savers are going to continue to get hit on this – which encourages more risk taking, be it in stocks, real estate, credit or what-have-you. The lower rates may help offset some of the softness that the housing market has endured over the last few months, seeing as how it takes mortgage rates lower. Then again, several more strong economic reports are going to create a bit of a conundrum – it’s hard to see how real growth of 5 percent (that is, nominal growth of about 3 to 3.5 percent in the second quarter, plus inflation in the range of 1.7 to 1.8 percent) supports a 2.5 percent 10-year yield, but we may be about to find out.

MORNING BID – Bonds, as jobs approach

Jun 5, 2014 13:01 UTC

Determining the bond market’s next move is the ultimate in tea reading right now – long-dated fixed income Treasuries, after spending some time in the mid-2.40 percent range area, could tick back to the upper end of the yield range following whatever transpires with Friday’s jobs figures as investors focus on the fundamentals in the economy driving yields. Europe still has a part to play, too – and as Gertrude Chavez and Mike Connor pointed out in a late Wednesday story, investors believe there are a number of factors that complicate the assessment of where bonds are and what they’re saying about the economy given external factors like Europe.

That said, stronger-than-expected jobs data, especially after ADP disappointed investors with its 179K increase, would go some way toward pushing yields into the upper range of late – somewhere between 2.75 percent and 2.80 percent.

Where are U.S. yields headed now?

Where are U.S. yields headed now?

In a comment late Wednesday, economists at Goldman Sachs point out that the Wednesday release of the Fed’s Beige Book show improved hiring trends in some areas, and the firm’s own Beige Book tracker, which counts the “relative frequency” of positive versus negative words in the report “moved up from the last report to a level consistent with an above-trend rate of expansion.” So make of that what you will, though it’s hard to dismiss that given the Beige Book is just anecdotal to begin with.

The bond market’s recent activity puts it in “corrective mode,” notes Ian Lyngen of CRT Capital -and they figure to see the 10-year shift more in the direction of 2.75 percent rater than the other way around, but the dynamics have changed a bit where the upward move is more likely to be slow and steady. “The price action of that few days tells us that the shorts out there are not under a lot of pressure to cover like those that had to cover last week and so are stronger-handed,” he wrote.

MORNING BID – Forming lasting bonds

Jun 3, 2014 13:00 UTC

Discerning where the bond market is headed next has been the primary occupation of investors in the last several days. The selloff seen in the Treasury market after the Institute for Supply Management fixed, re-fixed and then officially re-fixed its manufacturing survey shows that perhaps long-dated yields have come about as far as they’re going to go for some time here – moving back above the 2.55 percent level after dipping down to around 2.44 percent on Friday. We’ve been over this before, but it’s instructive to look at just what’s forced yields this low and take a measure of the various factors involved, and what it might tell us about where we’re going from here.

A number of strategists notably believe the expectations for a lot of monetary helicopters over Europe has something to do with it – noting that the sharp dive in Euro-zone yields has contributed both to a shift in institutional funds to the comparatively high yielding U.S. debt market, as they see the German bund 10-year dropping to about 1.40 percent while Italy sits at 2.96 percent and Spain is at about 2.84 percent at this time.

Just as with the euro, the reaction in bond markets to the eventual ECB activity is going to be interesting to watch – if the ECB does more than expected it could continue to undermine the euro (which is kind of the point) and push more money into long-dated U.S. Treasuries, if only for a while. From there, the market would start to get hit with mortgage convexity related trades as investors rush to protect against prepayment. That’s the bullish view for bonds, and Morgan Stanley and Mizuho are among those who believe it’s more the ECB than anything else. After all, yields are not falling against European yields, they’re falling in an attempt to keep up with them – that’s not a sign of worry about risk, but something else.

That something else, of course, could be related to the economic outlook. It is a weird moment to see stocks hitting all-time highs while the bond market seems to signal concerns about growth with the sharp fall in long-term yields. But here there’s also reason to question that premise once again: bond yields have been driven lower in part due to demand, as Citigroup’s Tobias Levkovich notes that bond fund flows had been “abnormally low” for several months and are now more or less picking back up to something a bit more normal. Looking at Lipper’s data bears this out: the four-week moving average for Treasury funds had shown outflows consistently from July 2013 through late March, with a brief pause after an anomalous $8 billion inflow week in early February. It’s been positive ever since – slow, but positive. Short positions have also finally been worked off, with the big short position in 10-year Treasuries falling to just about 19,000 contracts, pretty darned close to even, from more than 160,000 contracts in the fourth quarter.

The idea that the move in bonds is predicated on weak economic growth is also a bit of a difficult one to sell given recent performance in the curve itself. For a time, a big-time flattening trade was in effect, where the 10-year and 30-year yields were falling as the five-year was backing up.

US yields fell throughout May.

US yields fell throughout May.

That flattening reflected real worry that growth would not be strong enough to keep the yield curve steep (it had already been plenty steep, so some of this was a mean-reversion kind of deal), but May’s rally actually saw the five-year and 30-year spread widen out, not by much, only a few basis points, but it made up for an earlier move that had the five-year lagging, and again, this is more of a sign the market sees monetary policy staying accommodative than something more sinister, as Bank of America-Merrill Lynch pointed out. Further, the Morgan Stanley folk think it’s time to press this trade further, betting on a back-up in the 10-year and more rallying in the fives and 30s.

The question, of course, remains whether investors see the bond rally picking its way back up again, or if things have petered out from here. The ECB remains the wild card here, and it may keep a ceiling on U.S. yields so that the 10-year doesn’t really push much past 2.70 percent or so for some time, even if it seems like it should.

MORNING BID – The “Everything Is Awesome” Rally

May 30, 2014 12:50 UTC

Sometimes the biggest pain trade is not being in the market at all, and that’s certainly the case in 2014. We’re in something of a Goldilocks environment when it comes to major markets: Bank of America-Merrill Lynch laid this out pretty well in a note yesterday, noting that global equities, US stocks, emerging markets, government bonds, gold, high yield bonds and investment grade corporate are all up between 3.9 and 5.2 percent so far this year.

One way or another now, there are a lot of people waiting for something to go wrong in the market and as a result it’s more or less caused people to freeze in place. Recent investor surveys in the stock market have more people neutral than has been seen in a long time, because while they don’t see equities falling dramatically any time soon, they also are confounded as to how the equity market can keep rallying.

YTD asset performance

A similar affliction infects the bond market as well: long-dated Treasuries are rallying hard and may continue to do so, and that’s just got people perplexed – there are good reasons for bond yields to be higher, but equally valid ones for bond yields to continue to grind lower as well. Eventually, the thinking goes, one of these markets is going to break, and a lot of positions are going to get run over in an effort to get back to a better place.

The knee-jerk thinking, however, is that stocks are of course the ones in the wrong, because stocks tend to be the more immature crowd here (like Emmett in the Lego Movie), but that’s far too easy a way out on this. Similarly, saying the falling bond yields is indicative that the “bond market knows something we don’t know,” also ascribes a level of clairvoyance to the fixed income crowd that also doesn’t really jibe with reality. Sure, the bond market, as Bob Doll of Nuveen Asset Management told Reuters yesterday, could be saying they’re from Missouri right now, unconvinced of the expectations for better than expected economic growth going forward (Goldman now sees Q2 GDP at 3.9 percent), and so they’re pushing yields lower.

That’s not the same as saying there’s some sort of systemic freak-out on the way, not with the Merrill 6-month MOVE Index (a measure of fixed income volatility) still tracking not far from its lowest levels in more than a year), not with options on the VIX costing next to nothing and overall implied and historic volatility at rock-bottom levels.

Want more? Credit Suisse points out that S&P calls are at their cheapest in a year – SPX 25-delta call implied volatilities are at one-year lows, and to unpack that a bit, that’s looking at out of the money calls with a 25% delta. Since a delta of 1, or 100% refers to an option that moves right in line with the underlying index, the 25% ones are way out of the money and therefore ones you’d be buying that would factor in substantial moves one way or another. So that’s putting in very little risk of a big “tail” event, which near as we can tell, is something like getting hit with a stegosaurus’s tail.

The question of how long a condition like this can persist, then, is “quite a while,” and it’s a topic we’ll visit on several levels over coming days. Heavy buying out of European institutions, expectations for a big monetary policy bomb from the ECB next week, pension fund buying and allocations from other institutions should keep a lid on bond yields.

Short positions probably still need to be worked off as well: the net short position in 10-year bonds is still more than 97,000 – down from about 165,000 in mid-April, but still a fairly substantial position. Sure, some may be new positions, but it’s still something that would get squeezed should yields slip a little lower and mortgage convexity buyers are pressured into the market. So add that to the mix. BofA/Merrill added its name to those who see a summer rally coming through, based on overall low value-at-risk from investors, combined with poor performance, low volatility and heavy liquidity, all things that cause people to start chasing.

With all of that, you end up getting more support for equities, which look by comparison to be a bit cheap when compared to bonds. With yields so cheap, the temptation to do more borrowing to flush that money into emerging markets, high yield, stocks and other riskier assets remains high. The Fed is backing off, sure, but they’re not doing it quickly.

MORNING BID – All bonds, all the time

May 29, 2014 14:16 UTC

There’s nothing dull these days about the bond market, which is exhibiting an unforeseen, profound level of strength that’s spread through the various asset classes on the fixed income side, and that continues to remain unexpected for the most part.

As of Wednesday the Barclays US Aggregate Index had notched a year-to-date return of 3.62 percent; the 10-year-plus index was up a crazy 9.39 percent, and the Barclays Intermediate High Yield Index was up 4.05 percent. Looking at one of their competitors, the Bank of America/Merrill Lynch Corporate Index has so far netted a 5.39 percent return year-to-date while the Merrill High Yield CCC and Lower Index is up 4.45 percent. So that’s pretty solid returns across the board – comparing favorably with the S&P 500’s total return of 4.3 percent so far this year. Explaining how it’s all happening in the bond market is the more difficult task, but let’s give it a whirl.

The Barclays US Aggregate Index had a duration of 5.62 years as of Wednesday – duration declines throughout the month as various maturities in the index slowly mature, and then the figure bounces back up again on the first of the month following the Barclays rebalancing of that index.

So at the beginning of May it was 5.70 years and at the beginning of April was 5.72 years – as long as the duration has been since 1979 and reflective of the Federal Reserve’s steady move away from its monthly bond buying and the recent decline in auction sizes for two- and three-year notes. Estimates from traders on Wednesday were that the next extension would boost that duration to about 5.75 years, still taking us back to the Carter Administration in terms of overall duration.

Taken together that’s affecting the buying in the long end of the curve in a way that some other factors, including pension fund purchases or the effects from Europe may not be (generalized fear and big, big short positions still arrayed against more gains in bonds are also contributing, however). Notably the 10-year hasn’t been able to break through what some analysts identified as resistance around 2.45 to 2.47 percent. This is the second time that’s been tested in recent days (there’s no technical strategy that abides by the ‘third time is the charm’ adage, just FYI).

Furthermore, we might also start to see some convexity-related buying out of the MBS sector in coming days: Vitaliy Liberman, portfolio manager of mortgage-backed securities at DoubleLine Capital, said on Wednesday that he sees another 20 basis point drop in the 10-year Treasury yield, telling Jennifer Ablan that “at that point, you might see some scrambling to hedge out convexity.” (When interest rates fall and homeowners refinance, investors of mortgage-backed securities get back their principal, which they have to reinvest at lower rates. To offset the resulting shortening of their portfolios, they buy non-callable Treasuries.)

Either way, though, most of the reasons offered up for bond yields sinking are undercut in some fundamental way: it’s hard to argue that the safe-haven rally is what’s keeping bond yields dropping as sharply as they are – volatility indexes, be it the VIX or the MOVE Index, are all pretty much saying that there’s no volatility right now. Valuation doesn’t quite explain it – if anything, the move in the bond yield puts it at 400 basis points less than the S&P 500’s earnings yield of about 6.45 percent right now, which is way past the usual difference of about 138 basis points.

One could point to lack of inflation, which is to say it’s possible that expected low inflation – as seen in the five-year/five-year forward rate that still only puts inflation at about 2.5 percent five years from now – as a likely enough catalyst. And rising rates and weak demand would certainly explain that combination – mortgage demand is low, wage growth is weak, overall economic growth came in at -1 percent in the first quarter (even if the weather had something to do with it – which it did).

That mélange of stuff lines up relatively smoothly with the notion that the market is discounting a weak economy in the future that market players just don’t believe right now, and volume in the last couple days has been high enough to warrant this a second look as an explanation. Where it falls apart, of course, is the possibility that the equity market is the one that’s correct here, and that economic growth is about to take off (we’ve heard this before, no?) and with that the bond market gets whipsawed into oblivion.