Chart of the Day: US10Y mean reversion in full swing but...

US10Y mean reversion in full swing but keep bigger picture in mind.

We do not expect an exodus en masse for US treasuries after the announcement that the SLR relief was not to be extended. The reason for that was twofold.

Firstly, it was the calming comments from multiple and highly respected analysts in the fixed income space who explained that the impact on market functioning might not be as big as some had initially feared.
Secondly, positioning always played a huge part in this with primary dealers already shedding more than $80 billion in treasuries going into the FOMC meeting in anticipation of the SLR relief not being extended.

The most important thing to keep in mind right now is the bigger picture, where the med term bias for US10Y still remains titled to the upside. That means keeping a very close eye on the key support to the downside will be very important.
Both the 1.60% and 1.50% level are the obvious support areas where we would expect the bond sellers to lean back into and push US10Y higher again. This will be very important due to the strong inverse correlation between US10Y with GOLD and JPY as well as the positive correlation with the USD.

Any signs that the 1.60% is holding would still be considered as an opportunity to look for USDJPY upside from a med term perspective so keep that on your radar.