10-year Treasury yields proceed to surge greater as the idea commerce implodes

It’s all running vertical now with 30-year Treasury yields on the cusp of hitting the 5% mark. For some context, 10-year yields in the US were at a low of 3.88% on Monday. This points to further liquidation in Treasuries and that’s a sign that we are seeing distress in the parts of the market that we should not normally talk about i.e. funding, credit, repo.

All of this is also amplified or at least made more evident by the weak 3-year notes auction yesterday here.

As mentioned in the last post:

“Non-dealer allotment also fell to a more than one-year low indicates that the recent liquidations are arguably VAR-related and that’s a bad sign if all of this continues. It points to some hedge funds potentially in danger, if not already. And the cascading effect of any blow ups is never a good thing.”

Besides that, we’re also seeing a massive tightening in swap spreads for Treasuries and that is another big signal of funding distress.

In any case, the sharp rise in yields itself is another part of the financial dislocation that is reverberating and will have bigger repercussions for things like the housing market and the economy. It’s all going sideways at the moment.

The funny thing is that all of this is not so much reflected in the currencies market despite the fact that dollar basis swaps are also blowing up. Does that speak to the dollar’s status in the current market context? Perhaps.

EUR/USD is still up 0.7% to 1.1030 currently and the yen and franc are still very much favoured otherwise as safe havens. USD/JPY is down 0.8% on the day to 145.05 while USD/CHF is down 0.7% to 0.8415.

But at least in emerging markets, the dollar is still seeing bids I guess. So, that is perhaps the first piece of the domino.