The recent and sudden rally in the bond market has some traders reaching for all types of explanations. Some are pointing to soft economic data. Others are already floating the possibility of another round of Fed stimulus, or QE4.
But the world's biggest asset manager has a much simpler explanation.
"What you have is a massive short-covering in the markets this week," said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock.
Yields on the U.S. Treasury 10-year note experienced a flash crash of sorts last week, with the yield briefly falling below 1.9 percent and hitting a 16-monthlow.
One theory floating around the market is that rates fell because of fears of a global slowdown and deflation, leading investors to seek the safety of bonds. And as bond prices rise, bond yields fall.
But Rosenberg thinks those theories might be overthinking the situation.
"I don't want to completely throw out the deflationary story because that is more of a global story," said Rosenberg. "But I think much of what you're seeing in the bond market this week is much more about the technical short-covering issue."
When traders bet against bonds, they are hoping that their prices will fall and yields will rise. When these bets go against them, traders are often forced to buy those bonds back to avoid losses and, in the process, drive prices higher and rates lower.
So, where does Rosenberg see the benchmark U.S. 10-year trading by year's end? "We're thinking maybe 2.50-2.60," he said. "In the longer run, as we get through normalization, we'll get closer to the 3 percent level. But that's not going to happen by the end of the year, given what has happened here in October."