Sovereign selling likely contributed to the recent rout in bonds | Forexlive

The rout in bonds that culminated with a rise to 4.40% in US 10s last week was curious because it wasn’t supported by moves in other markets and was particularly strange when gilt yields fell.

We speculated about FX intervention and sovereign selling as reasons and now there’s more evidence. The New York Times today reports that “bankers said China, Japan and India had sold Treasuries in recent weeks to help support their currencies.”

I don’t think that’s anything groundbreaking but it’s a reminder that economic fundamentals aren’t always in charge. The tough thing for those countries is that selling Treasuries pushes yields up and that boosts the dollar. So in that sense, the intervention a losing battle as you’re selling in a less-liquid market to go to battle in the largest and most-liquid market in the world.

At the same time, if you can sniff it out, it creates an opportunity because yields have come back down since as the selling exhausted.