Over the weekend, in the course of documenting what ended up being the best month for US government bond returns since 2008, we gingerly suggested that while a benign rise in yields would be highly desirable to the extent it would suggest slowdown/deflation worries are fading, a quick upward "correction" (i.e., a rapid bond selloff) could be highly destabilizing.
Market participants have learned to fear tantrums in the post-crisis world. Central bank asset purchases have impaired the functioning of government bond markets (obviously more so in Japan and Europe than in the deep market for USTs) and with yields sometimes prone to overshooting to the downside, "tantrum" risk is always lurking in the background.
Of course, that risk is larger or smaller depending on a variety of factors including positioning and the macro backdrop, but the point is, with everybody on one side of the boat after the mammoth bond rally, markets likely wouldn't be able to digest a rapid rise in yields with anything that even approximates alacrity. As we put it on Saturday, "one has to be concerned that any sudden bear steepening would risk kicking off a tantrum, which could be even worse than a continuat
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