What Fueled the Rally?

Early consensus says Yellen manipulated markets again.

Bloomberg: Bonds Feel the Love From Yellen's Shift in Sale

One thing and one thing only was sucking all the oxygen out of the room: the Treasury Department refunding announcement. And when it showed that the US government planned to concentrate new debt sales in shorter-term notes rather than longer-term ones, it turbocharged a rally in 10- and 30-year bonds. Add in some weaker-than-expected manufacturing data, and yields dropped even further.

Bulls are out saying buy everything, this is stealth QE. I see more comments from them than from gold bugs and dollar bears (odd because I’m sure more of the latter are in my social media feed). The latter of course correctly interpret this as a horrific development for the United States.

I’m also skeptical about the impact since issuing fewer treasuries will over the longer-term, slow the economy. With GDP Now already down at 1.2 percent and real GDP growth already running below the federal budget deficit’s share of GDP, fewer treasuries will further lower growth, potentially tipping the economy into recession if it’s not already headed there.

Others claimed there was more direct intervention by Treasury in light of bond market stress hitting levels last seen in March 2020 and October 2022:

March 2020 unleashed a QE fueled rally. October 2022 unleashed a roughly four month rally that then required another monetary intervention by Treasury. Yellen forced the Fed to start the Bank Term Funding Program as part of her “bailouts for billionaires, but not community banks” package. Now six months later, another intervention. The USA Treasury department has a news feed that’s starting to resemble, albeit only partly so far, that of Pakistan, Turkey, Argentina and other nations that went down the fiscal tubes.

Away from the beeps and boops of the computer trading algorithms, the systemic crisis slowly inches its way to greater magnitude.