The Treasury market last Thursday saw its first five consecutive days of 30-year bonds outperforming 10-years since 1993. The sustained bull flattener, as it’s called, has only happened six times before in 16 years, according to Gerald Lucas, chief Treasury and agency debt strategist at Banc of America Securities. The bull flattener refers to a flattening of the yield curve as yields rise in general.
“Usually in a rally, the 10-years will outperform the 30-years,” Lucas explained. He attributed the strength of the 30-year to investors going further out on the yield curve in the current rising-rate environment. “Volatility is low so people don’t want to buy mortgage-backed securities, so the next thing is to go out the curve,” he added. The investors that might be contributing to the bull flattener would be pension funds, foreign investors and hedge funds, he said.
