Thursday, December 15, 2016

Bond Market Control

Pete 'Maverick' Mitchell: Goose, I'm losing control. I'm losing control. I can't control it. It won't recover. Shit!
Nick 'Goose' Bradshaw: It's coupling up, Mav. We're out of control. This is not good! This is not good!
--Top Gun

Treasury yields gapping higher after the Fed raised rates yesterday and signaled more increases in 2017. Ten year yields moving quickly toward the 3% maginot.


It has been clear for some time that the end game to this long period of market lunacy involves the loss of bond market control by central banks. This may be the beginning of that end game.

If it is, then I must admit that the scenario currently unfolding was not one that I had considered. Rampant economic optimism after unexpected election results causes people to buy stocks to all time highs while dumping bonds. The Fed follows with rate hikes and rhetoric that reinforces belief that bonds need to be sold in favor of stocks--even though bond yields are up over 50% in a month. All the while leveraged bond market longs are getting carried out on stretchers as they 'teach' others to close their long bond trades.

Meanwhile, trading robots programmed to short bonds above 3% TNX await nearby.

Nope. Not a scenario that was on my radar.

no positions

1 comment:

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