‘Rout,’ ‘Tantrum,’ ‘Debacle,’: One Trader Says ‘This Is All A Bunch Of Tripe’
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," "deba
It’s not a rout, debacle, or tantrum if you are short. Seems more like an opportunity.
Good article. My view of what’s going on is a little different.
The yield curve has steepened sharply since the Tantrum began. I guess you could say this is because inflation expectations are rising (but commodity prices have been dropping) or because the Central Banks will be not be buying as many longer dated notes and bonds (but I believe they have been buying, and now own more notes under 5 years than above 5 years maturity……….a lot of the 10 Year notes and mortgages they have bought since 2009 are now under 5 years in maturity/average life).
So why is the yield curve steepening?
IMO it’s fear of deflation. If we get a sever deflationary recession, the Credit quality of Sovereign debt will be in question, considering the deficits and reduced tax flows.
You don’t want to own long term bonds during a deflation, with public balance sheets where they are.
Just my opinion,,,,I could be wrong.
Greenspan must not be the Dean of the central banker community, because he is pretty much emphasizing other things like ahem, productivity. If these people don’t see a dearth of wealth creation ingredients, then they never will get it. To that polemic, AI, robots, and Tesla will have virtually nonexistent margins. What are their unsubsidized margins now? And what is their credible plan to scale? So…..maybe these people have finally figured out that prolonged negative real rates are counterproductive over decade long time frames and that that boneheaded approach needs to be taken back. Then there is Kuroda. Wait. Aren’t we turning into Japan too? If that handwriting is on the wall, then someone needs to go back to the drawing board as opposed to giving speeches, or maybe back to the classroom.