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Traders Look to Friday's Q3 U.S. GDP Report

October 28, 2016 | Morningstar

Treasuries are still far underwater today in a curve-steepening trade as the 2-year/10-year Treasury yield spread widens to 98 basis points, +5 bps on the day. The U.S. Dollar Index is up 0.30% to 98.93 and gold is up 0.22% to $1,269.4/troy oz. WTI crude is up 1.40% to $49.86/bbl.

The idea that government bond prices had risen far above fundamental value was widely accepted when yields first went negative. As time went on, career risk and perhaps just the natural human nature of market participants to try to justify current prices led people to create a variety of arguments to justify buying government bonds with negative yields (or in the case of the United States, negative real yields). We on this page have been complaining about low yields for some time but the tipping point really came when the 30-year Treasury bond yield matched the S&P 500 dividend yield in the market panic following the Brexit referendum vote. That was a fundamentally ridiculous situation. We continue to watch the 2.60% level as a tipping point in the 30-year Treasury yield due to the downtrend in yield that we have drawn from the 12/31/2013 high (see 09:18 ET comment).

Yield Check:
2-yr: +1 bp to 0.88%
5-yr: +4 bps to 1.34%
10-yr: +6 bps to 1.86%
30-yr: +7 bps to 2.62%

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