Bonds Overextended

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Last week the bond market hit a significant number – the lowest yield on record. On Wednesday the bench mark 10-year note took a tumble in response to the rally that has seen prices for bonds soar. However, the yields didn’t spend too long at the bottom, rising during Thursday session off the back of a robust employment report, which in turn encouraged investors to lighten up on some of their safe-haven holdings. The rally came ahead of a Friday’s non-farm payroll report which is key in the bond market. This data has been a little lackluster of late, which has seen more investors move to bonds as a port in the storm. For example, May’s data pointed to an appalling 38,000 job increase. This month, economist predicted 165,000 in contrast.

With a strong non-farm payroll, we are expecting investors to leave the bonds market, muting prices and causing yields to rise. Consequently, we are going short in the market for the foreseeable future, across all the treasury notes.

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