When The Bond Bubble Blows Up

Amazing isn’t it? It was only back in H2 2018 when everybody but you (because you are as smart as I think you are or because you read NFTRH) and me was unbelievably bearish about the TREASURY BOND BEAR MARKET!!!

Today… not so much. The herd is absolutely pile driving bonds right now.

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tlt

I know this all too well because while my SHY (cash equiv.) position is doing well it’s not anything like the above, and is basically – given relative position sizes – offsetting a position in this, which I am still holding with all the stubbornness of a pissed off contrarian.

(Click on image to enlarge)

tbt

The two positions are part of my at least temporarily interrupted yield curve steepener. Hilariously the spread is up almost 500% today and just barely not inverted.

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yield curve

yield curve

And so the Continuum continues downward.

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tyx

Here, let’s magnify it so see what it actually looks like with respect to recent history.

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tyx

While I am not a bond expert I do know that the 30yr US Treasury bond is the debt-riddled Uncle Sam’s promise to pay and in mass herding into the long bond investors are seeking the safety of Unc’s good faith and promises. No seriously, this is the last time they are going to conspire to break the bank and spend well beyond their means.

Spend spend spend, Bush, Obama, Trump, Congress always… The chart above mentions the Fiscal Cliff, and I distinctly remember laughing at the hissy fit the markets were having with all the hand wringing about ‘will they or won’t they?’ continue to spend off the charts. Oh yes, right. They. Always. Spend.

Anyway, you’re buying bonds right now? You’re funding a spend-o-holic that just keeps adding layers of excess, talks some talk about fiscal restraint and then adds more layers… routinely and forever, until the thing rolls over, wheezes and exhausts itself… or until bond yields rebel.

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