Benchmark 10YR US Treasury bonds continued to sell off heavily yesterday, sending yields to the highest level since Nov 2008.
The adjustment in the US Treasuries market is THE story in financial markets, and will wash across all other asset classes.
The key question is how to interpret it:
(1) Is this simply an unwinding of the unsustainable “bubble” that had emerged in US Treasuries during the flight from risk, that is now gradually deflating as risk aversion ebbs. If so, the movement should be fairly limited and could be interpreted as part of the “normalisation” of financial conditions.
(2) Is it the start of a flight away from Treasuries as fears about inflation and record issuance and debt levels trigger a fundamental reassessment — in which case the move could be much larger and far more destabilising.
Either way, this is the single most important story for all asset classes at the moment — with washover into FX as well as equities and commodities.