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Ban Bond Trading: Curve Inversions & The Reality Distortion Loop Of Reverse-Engineered Growth Slowdowns

"Why are you wearing that stupid trader suit?"

"Why are you wearing that stupid trader suit?"
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3 comments on “Ban Bond Trading: Curve Inversions & The Reality Distortion Loop Of Reverse-Engineered Growth Slowdowns

  1. Exactly ” At the end of the day, it’s possible that the end-of-cycle trade is being pulled forward by traders themselves, who are looking at the curve and forgetting about their own role in shaping it.” Expectations turn into reality, real machinery investment halts, projects are put on hold because commodities fall, etc. Unable to think one day with their heads, they shape their trades and views from what they read in blogs and twitter. Everything is magnified. Since months the curve is flattening, now it’s the buzz word in all social networks, all cats on all roofs talk about it. Ask them if they know what a bond rollover is, or a cheapest to deliver. Full with experts of the curve now. The same folk that was screaming inflation in October.

  2. In early October 2018 it was the 10 Year rising too fast that the media attributed to the stock market downturn. Now, the 10 year yield is falling too fast, the yield curve is inverting, and the media again points to the movement of the 10 year as an indicator of stock market unrest.

    Two different markets, with different investors, sending different signals.

    The Treasury bond market is dealing with too much supply on the front end, and not enough on the long-end – engineered by the US Treasury using the false assumption that lower long-term rates are better for stocks in an attempt to maintain the artificial stock market high created after Trump was elected.

    The stock market, plain and simple, is over valued.

    These two situations should not equate to an imminent economic recession; the market movements are a man made financial phenomenon that does not have much to do with the economy at the present time. However, if C-Suite executives panic and start to cut headcount as corporate interest costs go up because they have borrowed too much while doing stock buy-backs, and their personal stock option values tank in the process, there definitely will be a recession within 6-12 months.

    Pretty good odds that this scenario is about to happen; and it does not have anything to do with the trade dispute with China. It has everything to do with a failed worldwide central bank policy which has hyper-inflated stock values over the last 4 years and caused poor allocation of capital in the financial system worldwide. You can thank the ECB, BOJ, PBoC and the Fed.

  3. There is still a huge short bet in the 10 year, maybe there is a squeeze?

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