The sell-off in equities is weighing on yields as the US 10-year yield poked above 2.93% briefly in the middle of the last week before the equity market drag took it back to the lower end of the recent range, a little below 2.80%, according to Marc Chandler, Global Head of Currency Strategy at BBH. 

Key Quotes

“The generic 10-year yield has not closed below 2.80% since the early February stock drop.   The week began with many investors looking for some signal from the Fed that it intended on delivering four rate hikes this year.  The week finished with the January 2019 Fed funds futures strip not quite pricing in three hikes this year (or two more).”

“We suspect that the so-called "Greenspan Put," which is the market's shorthand for expecting the central bank to take action in the face of a precipitous and potentially destabilizing drop in equity prices, is still in place.  It strikes us as a basic principle that a central bank seeks to do no harm and minimize the impact of a significant threat.  However, because of moral hazard issues, and a judgment that valuations have been elevated, we suspect that the strike price of the put, or what officials would regard as destabilizing or potentially be threatening the Fed's mandates is lower than it may have been perceived in the past.”

“Speculators in the futures market are carrying nearly a record large gross short 10-year note position.  With the sell-off in equities and economic data that suggests the curse of disappointing Q1 US GDP continues, the bears appear vulnerable. A break of 2.80% on a closing basis could spur short-covering that sees the yield fall toward 2.70%.”