Long-end Treasury prices continue to drift lower this morning, pushing the 10-year yield to the highest level since early June (2.97%), and the 2-year/10-year spread has steepened 9 bps in the previous two trading sessions. There isn’t really a single factor driving the recent bear steepening. Some suggest that the recent flattening was overdone (likely), and investors are preparing for a very strong Q2 GDP print (4%+) on Friday, which makes reasonable sense. Additionally, expectations for higher Japanese yields could shift demand from Japanese demand away from U.S. and European debt to domestic securities, and there is also some speculation that the Chinese central bank may intervene to support the yuan (currently at 1-year low versus the dollar) by selling Treasuries. All these factors are likely contributing to a more bearish tone for long-end rates. The tone in risk markets is improved today as well, with all major global equity indices higher today (S&P 500 futures +12 points). Improved economic data in Europe, solid Q2 earnings reports, and rumors of potential fiscal and monetary stimulus from China are all bolstering sentiment in equities today.
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