Tuesday, May 12, 2015


Ask five experts as to the reason for the rout in global fixed income and you will receive six answers.  To me, the most shocking part of it all is that no one knows why it is occurring.  It's sort of like watching a great flock of Starlings sitting on the neighborhood trees, a screaming mass of black feathers all waiting for some unheard and unseen signal when suddenly they arrive and all take flight. For the better part of the past two days everybody sold bonds driving the Ten Year at one point up to 2.36 in yield before falling to 2.24 at the close.  The movement in the Bund was even more dramatic with yields rising over 20%.  There are a lot of losses out there.

If there is any agreement at all it is that the lack of liquidity for reasons already discussed contributed to this blood bath but was not the primary cause.  The Treasury has a big auction in 10 year notes tomorrow and in anticipation, many dealers might be clearing the decks for the issue.  But that happens all the time; movements like this are rarely if ever seen. To make it more unnerving is that there was no "event" to either trigger or accompany this action.  Monday was to be a nice, quiet day..I mean even Greece chipped in with their repayment to the Fund which incidentally came from Greek "emergency" deposits at the Fund.  I guess avoiding default could well be considered an emergency.  But I digress.

There is the view that this was a "repositioning event," that will soon be reversed in whole or in part.  I guess the next question is "repositioning for what" which of course will never be asked as the answer is either unknown or too horrible to be considered.  In any case I would like to see the balance sheets of the Fed and the ECB after this week as I am told they were the only buyers in size over the past couple of days not to mention the activities of the Bundesbank.  Now of course there will be winners as a result.  Mad Max tells me he was short the curve but not TOO short which speaks volumes as to the sentiment out there as a trader like Max usually has very strong convictions...except when he's really nervous.  How nervous?  Don't know but the Madman rarely leaves anything on the table up or down.    He's not doing that now.  Then again, there are few like him left.  Another conundrum.  For me it presents a real problem:  I've been writing that something like this is going to happen and now that the process has begun I have no idea as to why now or for how long. The one good thing is that I don't have any money any more.  I would be primed to lose a bundle.  It's the little things in life that count.

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