The Ratewatch
 Commentary by Bill Brizendine of Melody Capital MarketsThe on-again, off-again Treasury rally was “on” again last week as the 10-year UST yield fell 13 bps to close Friday at 4.58%. It seems there was a drop in consumer debt in September – the largest single month decrease in over 14 years. This, coupled with a drop in the trade deficit (due mostly to falling oil prices) and lower-than-expected first time jobless claims were proposed as last week’s reasons for the rally. The stock indices were up as well, continuing to break with the historical trend of moving in the opposite direction of the bond markets. This Wednesday, the minutes of the last Fed meeting will be released. Without a doubt, it will be thoroughly dissected and then retrospectively offered as the reason for whatever movement occurs - up or down - in the Treasury markets this week. However, we think what is really driving the Treasury yields is old fashioned supply and demand. The cycle begins with cash sitting on the sidelines, concerned about how much air is left in stocks but unwilling to accept Treasury bond yields. As soon as yields begin to rise the cash flows into the debt market, driving prices up (yields down). As yields decline, the flow dries up. And then the cycle repeats. We know that a lot of the capital in the Treasury market is foreign. Our guess is that yields will continue to move up and down without a strong connection to economic statistics, the equity markets, or Fed attitude or action, as long as we continue to finance our domestic budget deficits with cash from large foreign trade deficits. Download The RateWatch: A one-page analysis of institutional lending rates |