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Bond Fireworks: Largest Treasury ETF Now More Volatile Than Stocks
Anyone hoping for a reprieve from the "penny stock"-esque, rollercoaster price action that's come to define the world's deepest, most liquid market, was disappointed early this week.
Treasurys continue to trade with no sense of decency. On Tuesday, for example, a robust read on US retail sales (and particularly an anomalous control group beat) helped catalyze a confused selloff that bear flattened the 5s30s and bear steepened (marginally, and for a spell) the 2s10s, while leaving every sector m
Looking at the chart of TLT on the iShares website, with dividends reinvested, you are at breakeven today had you purchased 10 years ago. It has dropped about 48% since March 2020. I have to agree that it looks oversold but I am always fearful of getting cut by falling knives.
When the efforts to use fiscal and monetary tools to fight a serious economic collapse began, many advocates thought serious inflation would break out due to stable demand vs disupted supplies. Soros warned in 2010 this would happen, but sadi the alternative was worse. So far, I am reminded by 1994, where a truly massive equity selloff did not arrive, nor did the credit markets fully collapse. Personally, I thought the scenario this time would be bonds take a bigger hit than stocks, eventually we get a bit of stagflation followed by a worldwide recession. Two real mysteries: when this would happen, and what the path there would look like. I do think the 10 year trading at a yield of 55 basis points was a great signal to short treasuries- this time it looks likes the inversion in the treasury market bottomed out at 100 basis points and now we are in a bear steepener. The real question is will this very high consumer inflation hold. It’s important to remember that we won’t see much helpful data from private equity, or from alternative lending. If I was a public company, I would consider convertible debt, because if things don’t work out you can buy the debt back with greater flexibility.