by Chris Black
www.forexlive.com/news/why-the-signals-from-the-bond-market-are-truly-terrifying-20231012/
[The sum of all bond market fears is that the combination of deficits, QE, ultra-low rates and a general market mania (think NFTs, crypto and meme stocks) built a house of cards in the global economy that’s just starting to crash down.
Yes, silly season has been over for awhile but what’s beneath is an economy that looks more like NFTs than a real economy and the price is just starting to be paid. If this is the sound of the bursting of the greatest bubble of all time, then god help us because the economic, market, fiscal and political ramifications are terrifying and there’s nearly nowhere to hide.]
>Why the signals from the bond market are truly terrifying
US 10-year yields are rising at a rapid pace. US 10-year yields have risen to 4.70% from 4.0% since early August.
>The moves have come despite stable market-measured inflation and Fed expectations. Aside from some moderate underlying strength, there haven’t been any big economic surprises either.
The scariest part about it is that there’s no good explanation for why it’s happening. Lately, there’s been some hope that it was quarter-end or some kind of one-off puke but with two auctions missing this week (including today), it’s increasingly clear that real-money demand just isn’t there. There are scenarios where this blowout isn’t necessarily a bad thing and scenarios where it’s terrifying.
>1) Foreign buyers disappearing
2) Higher for longer
>3) Volatile inflation future
4) Debt and deficits
>5) Quantitative Tightening
6) All of the above
>Fear scale 10/10
You’ve been waiting your whole life for the house of cards to come tumbling down.
It is happening.
Nobody wants the bonds.
www.forexlive.com/news/ugly-treasury-auction-sends-the-dollar-even-higher-20231012/
>Ugly Treasury auction sends the dollar even higher
>There was a nearly 4 basis point tail on the 30-year sale. That’s certainly going to add to the term premium argument.
>It’s highly unusual for a bond auction to miss this badly and it argues for a return to the highs in yields.
>I can’t stress enough how rare it is for a bond auction to tail this badly. It speaks to some kind of real change in underlying Treasury demand, or at least some hesitation that hasn’t been there in decades.
www.forexlive.com/news/us-sells-10-year-notes-4610-vs-4592-wi-20231011/
>US sells 10-year notes 4.610% vs 4.592% WI
>Highest yield since 2007
>There was some USD/JPY buying ahead of the sale but watch out for more because a concession was built into the sale and it still wasn’t enough.
>Next month, the Treasury is expected to announce even larger auction sizes, which could also push yields up.
>The US treasury sells $46 billion of 3-year notes at a high yield of 4.74%
>AUCTION GRADE: F
>Both domestic and international demand was light. The bid to cover was much lower than the six-month averages. There was a high tail 1.7 basis points.
>The bad auction is something to pay attention to going forward and could lead to higher rates as the US auctions off more debt, but investor demand (especially from foreign sources) slows.
This is 10x more important than the Middle East conflict, and is literally why the Middle East conflict is happening right now.
The conflict occurred in order to try to create a global demand for bonds – if there is global uncertainty, geopolitical uncertainty, investors flock to buying bonds as a ‘flight to safety’ ‘flight to quality’ investment.
www.reuters.com/markets/us/us-treasury-futures-rise-flight-quality-cautious-fed-speak-2023-10-09/
www.zerohedge.com/markets/turmoil-markets-sets-flight-quality
(if you don’t believe me regarding the war creating a bid for bonds – google “flight to quality” sort by news in the last week)
This is a desperate, last ditch attempt in order to prevent global economic collapse.
The war is real – but it was done in order to create a bid for bonds.
There are no buyers.