The Real Risk For Markets: The Bond Bubble Bursts
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 functionin
As some may not recall, one of the best returns last year was to be parked in a money mkt, collecting interest
I recall reading that the current FFE indicates where the 2 yr ate will be a year from now. I’ll see if I can dig that up, and if so, looks like a wonderful yr ahead:
https://fred.stlouisfed.org/graph/?g=oKEE
The two-year yield curve: So instead of trying to calculate the Fed study’s near-term spread, we will focus on the 12-month forward futures for the federal-funds rate, which is available daily (Fig. 5). The two-year Treasury note yield tracks this series closely, suggesting that it is also a good proxy for the market’s prediction of the federal-funds rate a year from now.
https://www.marketwatch.com/story/this-is-the-real-reason-why-the-us-economy-isnt-in-recession-danger-now-2019-04-01
Is the Bond Mkt broken or the Fed, or what?
https://fred.stlouisfed.org/graph/?g=oKLh
Will the recent gold surge abate if yield rise?
It sounds like the danger scenario is that something causes an initial bond price decline, that triggers a big bond selloff, that tightens financial conditions when looser is needed.