US yields backing up; what’s up with the that?

The highest unemployment rate in 25 years, the loss of an additional 663,000 jobs this month and a drop in output in the all-important US service sector adds up to a pretty dire day for the US economy with the only bright side that things “coulda been worse”.

Against this backdrop, it is hard to reconcile the fact that US bond yields rising today. Perhaps it was the passage of a $3.5 trln US budget and the waves of Treasury issuance that will accompany it are spooking the market.

More spooky is the fact that the Fed little more than two weeks ago pledged to pump $1.1 trln into US bond markets and rates are only marginally lower than they were before the pledge. If memory serves, the 10-year note was right around 3.0% when the Fed announced “shock and awe” and today we stand at 2.85%. I guess $1.1 trln ain’t what it used to be…

Dollar bears will take comfort in these moves, saying they provide ample evidence that markets will require higher rates are a cheaper dollar (or both) to attract foreign investment.