Back-door easing to control 10-year prices

As the US 10-year bond pushes against 2.5% yield, how long will the Fed allow its borrowing costs being dictated by bond vigilantes?

The spike from 1.6% yield last year to its current level is mercurial for staid sovereign bond pits.

Bond price losses are very large suggesting why I reported yesterday why the primary dealers have slashed their holdings in Uncle Sam’s debt.

I believe we will see the Fed maneuver a stealth QE to soak up the excess offerings to make the banks whole on their paper losses.

Look for yields to back down to 1.9% to 2% level in the coming weeks if the Fed is successful.

The outlier in this is the beginning of a Justice Dept. probe into Treasury bid rigging between the primary dealers. If this investigation gains legs with acknowledgement of a probe, then yields could be rising all summer.

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