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Wall Street Sends a Message to the Fed: We Have Run Out of Places to Stuff Your Treasuries

Courtesy of Pam Martens

U.S. Treasury Note Yield Through February 25, 2021

By Pam Martens and Russ Martens

The action in the U.S. Treasury market yesterday reminded us of the classic “I Love Lucy” episode at the chocolate factory. As the conveyor belt churns out chocolate balls faster than Lucy and Ethel can handle them, they resort to stuffing them in their mouths, their hats, and their shirts. Lucy remarks: “I think we’re fighting a losing game.” (See video clip below.)

That was the scene in the Treasury market yesterday – too much supply and no where to stuff it, causing a sharp spike in yields which set off a stock market selloff that left the Dow down 559.8 points or 1.75 percent on the day, while the tech-heavy Nasdaq fared far worse, losing 478.5 points or 3.52 percent.

That the Treasury market is now projectile vomiting T-notes should come as a surprise to no one. As the chart above indicates, yields on the 10-year note have been rising sharply since early August, with the yield more than tripling from 0.50 percent to an intraday spike yesterday of 1.61 percent. The 10-year note opened this morning at 1.52 percent.

The sharp and persistent rise in yields have left those who bought the T-notes at dramatically lower yields licking their wounds from heavy losses. (Prices of notes and bonds move inversely to their yields.) That has also dramatically lessened the appetite to buy more Treasuries at the current yields when the supply is expected to continue to increase as a result of rising government deficits and stimulus spending.

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