A couple of hours ago China announced a revaluation of the yuan. This reduces the need for China and Japan to buy US treasury securities in the process of supporting their currencies against the dollar. As such it is bearish news for the US bond market and should lead to higher rates.
This is yet another test of the bond market and comes on the heels of yesterday's Greenspan Test. My views about the markets' prospects haven't changed and I expect this test to be successful too. In fact I think both the notes and the bonds will hold above yesterday's lows. In a few days the bonds should rally up to 117-02 and the notes to 112-12.
My confidence in this analysis is buttressed by Mark Hulbert's observations about the bearish sentiment in the bond market.
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