Thursday, May 28, 2009
The stock market is watching the bond market, wary a spike in interest rates will derail a fragile economic recovery and snuff the market’s rally.
Stocks tumbled Wednesday, but the real drama was in Treasurys and mortgages.
A selling spree in Treasurys pushed rates higher, taking the yield curve to its steepest on record as spreads between the 2-year and 10-year widened by over a dozen basis points on Wednesday alone.
The 10-year saw its yield move above 3.70 percent, after trading at 3.55 percent the previous day. The selling wave hit bonds shortly after 1 p.m., even after the auction of $35 billion in 5-year notes was well received.
“It was a great auction. It was just the follow through that was a problem,” said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald.