The 30-year bond future dropped more than three points over concerns about Joe Biden's comments on China. Biden said the U.S. would be “blunter with the Chinese” and that China must “play by the rules.”The bond is now down more than 14 points from the peak price of 141-06 reached in late December. At the time of this writing, the bond is on its lows trading down at 127-04. This is down more than 4 points from the Wednesday close of 131-06.
The bond was already trading down from the December peak based on continued concerns about increasing supply. Biden's comments exacerbated the drop and sent addition jitters through the market.
China owns more than $1.9 trillion of foreign reserves, and about 70 percent of this is in dollar denominated securites. The exact numbers are not known but it is clear that much of this is in U.S. Treasuries.
The recent action in the long term Treasury market reminds me of the action in the late 1980's. During that period the Japanese owned enormous amounts of Treasury securities and were the biggest players in the Treasury auction market. Daily trading ranges of 3 points or more were common at that time.
The recent action in the long term Treasury market reminds me of the action in the late 1980's. During that period the Japanese owned enormous amounts of Treasury securities and were the biggest players in the Treasury auction market. Daily trading ranges of 3 points or more were common at that time.
I think we can now expect to see extreme volatility in the ten and thirty years market as it tries to adjust to both supply and news developments concerning China. This is likely to have a destabilizing effect on stocks.
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