Bonds Are En Fuego

It could be for a long list of reasons. Here are a couple of the most popularly-held possibilities.

  • The Federal Reserve is going to reverse course and lower interest rates due to slowing economic activity. We will have an important piece of data on Friday (NFP). This is the one that is most popular and easy to understand.

  • Someone has the very very wrong position and is being forced to buy. This is the one that [some] professionals will know. The average person can think that high-frequency trading is irrelevant. It’s wrong. There is no getting around this. This needs to be added to the information set, when you are being programmed to believe “In the long run….” BLAHBLAHBLAH. Here’s news for you: short-term trading sets prices at the margin in the short term. Since the long term is the sum of short terms, it is important.

Back to the show and the long bond. While the equity markets seem stable, this isn’t normal. At all. Maybe it’s nothing. That is unlikely.

Side note: Hopefully, the US Department of Treasury and Federal Reserve are selling as many US Treasuries as it can, while the demand exists. The US government has racked up trillions of new debt, and the cost of paying for that debt is now 3x higher compared to 2 years ago. Same thing for the depleted national oil reserves, by the way.