Stock traders don’t normally talk about bond auctions, but all this week the 10-year Treasury auction that will happen on Wednesday has been the main subject of conversation.
“It’s been a long time since stock traders have cared about bond auctions,” Matt Maley from Miller Tabak told me. “The number one issue for the stock market now is bond yields.”
This belief is widely held on the Street: With the reopening story now largely priced into stocks, interest rates are the marginal mover of the markets.
You could smell the panic among stock traders as the 10-year yield moved from 1.1% to 1.5% in less than two weeks at the end of February, which caused tech stocks to tank. Some bond vigilantes predicted yields could move toward 2%.
If further stock rallies depend on rates, have they peaked? The 10-year Treasury has taken several runs at breaking out over 1.6% and failed. That is giving some investors hope that the runup is over.
Much depends on the outcome of Wednesday’s 10-year auction at 1 pm ET. Some stock bulls believe demand will be strong, particularly from overseas buyers like the Japanese, whose 10-year yield is at 0.1%.
Guy Lebas, chief fixed income strategist at Janney Capital Markets, said that foreign demand for U.S. Treasuries has and will remain strong.
