Well, former FX trader Richard Breslow is right about one thing: there’s been no shortage of hyperbole used to describe what we’ve seen in DM rates over the past couple of weeks.
[Note: those red highlights represent, in order, Draghi kicking off a parade of hawkishness by saying he’s going to “look through” purportedly “transitory” weakness in the incoming inflation data, and the sudden selloff in bunds that was triggered by a weak 30Y auction in France on Thursday]
“Rout,” “tantrum,” “debacle,” – all words that been variously ascribed to what you see in that chart.
And honestly, I don’t know what the fuck else you would call it. It is a “rout”. It is a “tantrum” (at least in bunds, if we’re sticking to the definition of “tantrum” as we defined it the last time bund yields surged like they have over the last two weeks). And depending on who you are, it is a “debacle.”
So while Breslow may be wrong to say those adjectives are “a bunch of tripe,” he’s probably correct to say that we’re looking at things wrong.
We’ve all been conditioned to look at markets through the eyes of carry traders, corporate management teams leveraging their balance sheets to buy back shares, etc. In short: we’ve all been conditioned to look at things like we’ve been forced to look at them for the last eight years.
Ultimately, that’s not healthy and here’s Breslow to explain why…
The bond market needs to hire a new public relations firm. Globally rising sovereign yields has been the story of the week. One central bank after another, here, there and everywhere, have brought the market up short (or long in this case) by overtly shifting to a more hawkish stance. But the way it’s being portrayed is all wrong.
- I’ve been hearing descriptive words like, rout, tantrum, debacle. No shortage of mentions that prices are getting killed and speculation about who and which strategies will suffer soonest. Hand-wringing has become ubiquitous. Traders are demanding some schadenfreude to calm their nerves. This is all a bunch of tripe
- What they need is a much more seasoned hand to make sure the message gets out properly. Probably a pro from Hollywood rather than Wall Street. We should be hearing, “Hurrah, rates can now rise to reflect better times.” Forget prices are falling — too negative — extol the obverse: yields are going up! Make them your new buy on a dip. That this is going to be great for savers. Get an academic paper out there and hold a symposium on why, human nature being what it is, inflation expectations and wages will actually rise. “And we have newspaper people on the payroll, don’t we, Tom?”
- I have news for you, too. Income inequality will never be cured with manufactured rates at crisis levels forever. The distortions to investment decisions is just too great. Fed Vice Chairman Stanley Fischer said last night that, uncertainty surrounding U.S. government policy may be holding back economic growth given the negative impact on business investment. Hardly. Why bother investing when you can leverage up for nothing, buy back your stock and be an instant hero?
- Rates are going up. You’re likely to hear that again from the Fed’s Monetary Policy Report and next week’s testimonies. The only pushback you’re going to get will come from their unfortunate desire that it happen gently. The only way to get investors to wake up and behave as if they truly do realize that we are transitioning to a new paradigm, with all the knock-on consequences for other markets, is to tolerate the occasional panic. “I told you so” isn’t always just a snotty retort