• A couple of several things are drawing our attention. US Treasury yields have erased about half of last week’s declines – yield decreases that were attributed to a short-covering rally. At pixel time the 10y yield was trading at 1.35bps, up 12bps or so from last week’s low. The Treasury rally caught us off guard for sure. We were only dabbling with yield curve flattening on the prospect of tighter Fed policy, and not a growth scare (there were whiffs of a growth scare last week on China, see below) or a short squeeze.
  • The rebound in Treasury yields is coinciding with reports that Beijing is already getting worried about the growth slowdown that we discussed several times in these Comments. Last Friday the PBOC took the rare action of cutting reserve requirements for banks. Over the weekend Bloomberg quoted Chinese media as reporting that in the second half local government borrowing and spending on investments is set to accelerate as growth is set to slow. Growth fears or not: commodities have not gotten the message and continue to trade at inflationary boom levels:

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