The Great Global Bond Bubble is Unwinding

Far be it from me to ignore the disastrous action in fixed income. There are three schools of thought at play here, the first and most ridiculous stems from Fed rate hikes. Chalk that up as improbable. The other theory has more to do with systemic problems, more to do with sovereign balance sheets, the end of European QE, and a resumption of the Chinese capital flight that scared the shit out of everyone earlier this year. The last and most favored amongst bulls has to do with the economy doing so good, so fucking good, that fixed income investors are selling bonds to buy stocks. The only problem with that theory is that stocks have been trading down too.

This feels like a squall, a temporary scare that is deepening as the trade unwinds. In other words, there wasn’t a lot of people buying treasuries when I was buying them, right? Most people chased it and got in late and are now unwinding, or selling, their positions. It’s like a giant fucking margin call amongst idiot hedge funds who thought it was a good idea to leverage up into negative yielding bunds because the price was ripping higher. Or, domestically, they were buying zero coupons and hoping for bad news. Well, here is the other side of that trade.

Every bond in europe is getting sold down, none more than the German 10yr.

Here in the states, bonds are getting hit, but nothing like in QE rigged Europe.

Bottom line: the optics of a bond correction are good for stocks, as long as it’s contained. If the route becomes pervasive and yields ‘blow out’, then that’ll be another negative headline that will scare idiots into selling. Like I said the other day, the acute and sudden sell off in markets is typically a trap for bears. The only thing that could derail a bounce is a continuation of the decline in crude.