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It’s ‘August In Reverse’ As Bond Selloff Worsens
On Monday evening, we asked if the bond selloff might have further to run, and if it did, what that might mean for markets.
One of those questions was seemingly answered on Tuesday, as the rout continued stateside. This comes with the obligatory caveat that given how littered with risk-off land mines the path forward most assuredly is, all it would take is one tweet to catalyze a flight-to-safety bid for bonds.
TLT has now fallen >1.5% in three of the last four sessions. It's on track for t
“This comes with the obligatory caveat that a single tweet could send everyone scurrying to safety, pushing yields back lower.”
You got it backwards H, a single reprieve could push people back to buying yields given where the yields where, whereas the non stop 3 years of tweets and counting are now the proverbial salt in the trade war inflicted wound that is pushing the world towards disaster, and it is the new normal. Caveat emptor indeed.
This is bond rout reflects a market that got overbought combined with really poor technicals from heavy issuance. Bonds should find their footing after the US Treasury auctions and we’ll be back to a more balanced market albeit at more realistic levels. The real question is whether the front end of the US Treasury curve is telling you the Fed will cut twice more this year or if they are wrong and we will get fewer cuts. The long end is pricing in a very low inflation environment which currently appears correct.