Where is the Fight-to-Safety Upmove in Treasuries?
|Ten Year YIELD peaked yesterday at 2.86%, and then nosedived to 2.74% in reaction to the equity markets coming unhinged late yesterday. It just so happens that 2.74% represents the nearest term support line for 10 year YIELD, which is interesting because my instincts were whispering to me from late Friday through yesterday, "where is the flight-to-safety upmove in Treasuries?"
Since December 27th, YIELD has climbed from 2.41% to 2.86%, and yet, in the face of a potential stock market crash, YIELD only retraced 10 bps?
Hmm... Seems to me that the flight-to-safety crowd is fighting against a very powerful, newly dominant uptrend in rates, but caused by what? An overheating economy? Really? The prospect of sudden, incipient inflation? Nah...
How about a growing perception that deficits finally are going to matter-- yes, FINALLY, just like the short volatility trade finally mattered (in a bad way) after two years of contracting day after day after day. Surprise!
Remember, this is the age of Trump-the-Disruptor, a time when the status quo is vulnerable to change, a time when the way things have been for years or decades, is undergoing upheaval. So too will investors' and policy-makers' suddenly awaken to an "OMG" moment about all of the debt-- Local, State, Federal, Corporate and Personal-- and if that happens, there will be no flight-to-safety-value for the bond market. A corollary to a surprise reaction to deficits is disappointment about budgets, if revenues are not as forthcoming as expected, or a Fed. Gov't budget deal that raises military and domestic spending in the absence of the means to pay for it. Again, more deficit spending, which could be the tipping point into the "OMG Moment" that rockets YIELD, and damages equity markets that have been climbing (had been climbing?) for 9 years...
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