Treasury Market Licks Self-Inflicted “Policy Uncertainty” Wounds

A real-rate-driven bond market selloff

Key Takeaways

• Rates Up Despite the Payroll Drop: If you had ever told me that the 10-year T-note yield would be +5 basis points higher now than where it was before a report showing a -23k contraction in nonfarm payrolls, I never would have believed it. The real interest rate — the risk premium — has accounted for over 100% of the increase in Treasury yields, and that comes down to a loss of confidence in U.S. economic policy (and not just fiscal, either). Let’s just say that absent this move in the real interest rate these past two months, the nominal yield on the 10-year T-note would be south of 4.4%, not north of 4.7%.