Raising Eyebrows

Raising Eyebrows

Thursday was something of a barnburner for multi-asset investors. After suffering an egregious first quarter rout, bonds have been reluctant to sell off this month despite mounting evidence that the US economy is indeed poised to realize the kind of blockbuster growth consensus expects going forward. Given the counterintuitive character of the market in April (i.e., bonds exhibiting signs of resilience in the face of scorching US data and outperformance from secular growth and other equities e
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5 thoughts on “Raising Eyebrows

  1. Rarely has the bond market looked more sinister to me than now. It’s like a Stephen King setting, with fog rolling in to mask the murky gatherings underneath, while equities are still out playing on the beach. 😉 I won’t predict what happens when I turn the page, but it’s a Stephen King novel, after all…

  2. Man, it has been so hard to be a dinosaur recently, eh? Recently meaning since 2009, anyway. Following the “immutable” rules of “value” in stocks and bonds have been disastrous for investors.

    As our Dear Leader aptly reminds us, “rules” are not rules, but simply belief systems.

    It’s hard for us old geezers, eh? The road map we relied on has proven to be hopelessly out of date.

    Thankfully I woke up to the notion that the only thing that mattered post-2009 was money flows and that traditional value measures were useless, except as a thermometer measuring demand. Buy-backs especially. That realization served me well.

    But I’ll confess that I still have difficulty accepting the underpinnings of risk-parity-type models which pay no heed to the virus, the economy or anything beyond asset price action. Yet they often dominate and overwhelm all other investment flows.*

    Are they the final manifestation of stock and bond markets being nothing more than gussied up casinos? Through that lens the rise of cryptos makes total sense. They are a logical extension of the severing of any lasting links between Main Street and Wall Street.

    I am still awaiting a modicum of performance data that will convince me that returns from vol-control/risk parity models are returning anything better than buying SPY and some bonds. I hear crickets!!

  3. So is it settled? The 10Y had risen (and given an indigestion to equities/growth stocks) purely b/c of the change in the SLR? And, now, regardless of the rather hot data in the USA (inflationary, innit?), yields are coming down b/c bond demand is strong?

    That’s… a bit unsatisfactory. I’m all for technical/flow factors being important but WHY is bond demand strong? Who is buying bonds when inflation seems poised to make a comeback?

    (NB: fwiw, like our host, I don’t truly believe inflation will make a sustainable comeback b/c I don’t believe that Labor will be able to make Capital cry for mercy anytime soon… but I would put conviction at the 65/70% level ie allowing for the fact that we know nothing).

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