1.) Inflation expectations. Higher inflation decreases the value of a fixed income stream and lower inflation increases the value of a fixed income stream. So if investors expect higher inflation they should sell treasuries.
2.) Interest rate policy: If the Fed is lowering interest rates than bonds issued before the rate reduction at a higher interest rate become more valuable. The inverse is also true.
3.) Flight to quality: in uncertain times investors seek the safety of US government debt.
4.) Overall interest rates on the bonds. Remember that prices are constrained on the upside by the interest rate of a particular bond. Although a bond can theoretically go to 0% interest, that would only really occur in a very limited set of circumstances.
Remember that gold is spiking right now, indicating inflation expectations are pretty high:
Yet Treasuries are still in a rally. Here is a chart of the 7-10 year Treasury ETF:
That means the "flight to safety" trade is probably dominating.
The same holds for the 20+ year Treasury market:
I bring this up because tomorrow we get PPI and Wednesday we get CPI. Will the news be bad enough to to start a sell-off in the Treasury market?
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