Treasury Bond Yields Keep Falling as Taper Continues

Despite today's modest uptick in treasury bond yields, the downward trajectory in yields coinciding with the Fed's tapering of asset purchases remains firmly intact. Admittedly we've been harping on this point now for months, so we'll keep this post short and sweet. For those unfamiliar with the relationship, the logic goes that as the rate of Fed accumulation of assets slows (the blue line in the charts below) bond yields (the red line in the charts below) tend to fall, and vice versa. If one thinks of an accelerating flow of Fed asset purchases as providing an upward bias to inflation and growth expectations, then the slowing and eventual ceasing of those asset purchases should have a downward bias to inflation and growth expectations, and thus lead treasury bond yields lower. This appears to be what has been happening since the beginning of the year in both the 10-year and 30-year bonds.