Inflation outlook, rate differentials, projected growth, positioning, quants... there are countless explanations provided daily to explain why bonds trade the way they do. And yet, as Bank of America shows today, as of this moment just over 50% of the global bond market returns can be explained with just one thing: central bank balance sheet changes.
BofA explains:
One day after a mediocre, tailing 10Y reopening, the Treasury held its last Treasury auction for the week, selling $12 billion in 30Y bonds at a yield of 2.936%, above May's 2.87% and the highest since 3.050% in May, tailing the When Issued of 2.926% by 1 basis point. This was the 4th tailing 30Y auction in the past 5.
The internals were unremarkable: the bid-to-cover of 2.31 was virtually unchanged from last month's 2.32, but above the 6 month average of 2.27%. Total bids of $27.9b for $12.3b in bonds sold vs $27.8b in bids for $12.0b in bonds sold at the previous auction
Authored by Yves Smith via Naked Capitalism blog,
The war on cash is escalating. A big driver isn’t central banks who want to be able to inflict negative interest rates on savers, or Treasuries who see cash transactions as hiding revenues from their tax collectors, but the payment networks that want to kill cash (and checks!) as competitors to their oh so terrific (and fee-gouging) credit and debit cards.
However, one bit of good news is there doesn’t appear to be much enthusiasm on the buyer, as in merchant, end.
US equity markets are ramping higher (aside from Small Caps) this morning as it appears the word "uncertain" - uttered ubiquitously by Fed Chair Yellen in the last two days - has a different meaning in stock-land...
VIX hammered to a 9-handle, sending stocks soaring...
Oh, and decliners are outpacing advancers...
Headlines: Everything is awesome. pic.twitter.com/XH4Vg3V3D1
— Sven Henrich (@NorthmanTrader) July 13, 2017
Remember the 2007 Bubble?
Remember how everyone said that it really wasn’t that big of a bubble because stocks weren’t as expensive as they had been during the previous bubble (the Tech Bubble).
We all remember how that turned out: the bubble burst leading to the greatest financial crisis in 80 years.
Well, today’s bubble is WAY larger than that of 2007. And arguing that stocks are cheaper than they were during the Tech Bubble doesn’t hold water anymore either.