Did Barron's nail the peak in yields?

<p>The old adage is that magazine covers are a jinx. That's particularly true with The Economist but Barron's has had some doozies, including making the case for Pfizer earlier this year (it's down 40% since).</p><p>The cover this week certainly raised alarm bells but it may prove to be one of the better-timed calls in the magazine's history.</p><p>US 10-year yields are down to 4.56% from a high of 5.02% on October 23 and 4.92% at the start of the week.</p><p>There are a few reasons to think this top in yields (and bottom in bonds will last).</p><p>1) The wave of buying</p><p>The FOMO that hit the bond market this week showed just how much money was waiting on the sidelines waiting to buy Treasuries and Treasury-proxies. Everyone was waiting for the BOJ, Fed, quarterly refunding and non-farm payrolls. When all those events were benign, the buying hit. Now there might have been some derivative squeezes in there or short covering, but I think that by-and-large, it was real money. There is much more behind that and if we get back close to 5%, it will be there.</p><p>2) The psychology was a tell</p><p>A couple weeks ago, people were talking about a rise to 6 or 7% yields. That kind of talk is always a dead-giveaway about a market that's gotten ahead of itself. It was the same thing when people were talking about $100,000 bitcoin, $200 oil or dozens of other big trends. Whenever the hyperbole starts, the move usually ends.</p><p>3) The economy is slowing down</p><p>The data is beginning to show what the Fed wants to see. It's tough to say right now whether inflation will get stuck at 3.5% or fall all the way to 2.0% but it's not-reaccelerating. Ultimately, we will go where the data takes us but with non-farm payrolls and ISM services slowing, it's a good bet that more weakness is coming.</p><p>The big hurdle in the week ahead will be another 10-year Treasury auction. I expect yields to range in the 4.50-4.75% area for a time and we will see if buyers show up near the top of that range. If so, it will confirm the top.</p>

This article was written by Adam Button at www.forexlive.com.