Safety Net Gone

I say, we can go where we want to
A place they will never find
And we can act like we come from out of this world
And leave the real one far behind
--Men Without Hats

Interesting comments from bond guru Barry Habib attached to Art Cashin's morning comments today. As to why long bond rates have ripped higher so quickly, Habib opines:

"A major cause of this is that the Fed safety net is gone. It didn't take long - right after October 1. Along with ECB buying cuts.

"Here's the interesting thing - more volatility ahead for yields rising and less volatility for them falling! That's because without the safety net, yields will behave more normally. It's been a long time, but the Fed buying has muted the selling in bonds and rise in yields. That's gone now. And when bonds were rallying, the Fed buys juiced it. That's gone too. So the rally will be less than we have been accustomed to, and the sell offs will be deeper. It will feel different, but it's finally now going to be 'normal.'"

What he's saying is that unnatural underlying bid to the bond market coming from central banks is going away as quantitative easing programs are discarded in favor of quantitative tightening. With the safety net gone, bond prices will fall much quicker as they seek their true, unmanipulated value.