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One explanation for the suddenness of the sell-off in Treasuries is that the market was almost completely one-sided owning bonds, because the Fed had already telegraphed QE2 well in advance.
“The easy answer is to say buy the rumour, sell the fact and, in this case, that’s what has happened,” says Michael Kastner, principal at Halyard Asset Management.
In other words, with QE2 priced in, the market responded by establishing a better balance between buyers and sellers. Indeed, it was not just Treasuries that have experienced a post-QE2 shakeout. The rise in bond yields late last week was accompanied by a sharp drop in commodity prices and a retreat in equities.
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