The Biggest Pain-Trade? - Bearish Bond Belief At 20-Year Extremes

Tyler Durden's picture

Jeff Gundlach recently warned that the trade that could inflict the most pain to the most people is a significant move down in yields (and potential bull flattening to the yield curve). Citi's FX Technicals group laid out numerous reasons why this is entirely possible (technically and fundamentally) but despite this, investors remain entirely enamored with stocks and, as the following chart shows, Treasury Bond sentiment now stands at 20-year extremes of bearishness.



(h/t @Not_Jim_Cramer )

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Jam Akin's picture

There are indeed lots of reasons why this could come to pass.


aVileRat's picture

May have something to do with the Chinese GDP numbers and 2H14.


Cult_of_Reason's picture

Bond yields are now higher than stock dividends. The relative value offered by bonds over stocks has widened significantly.

disabledvet's picture

the HK dollar is pegged to the US dollar. If that peg is broken (HK dollar devalued) you'll see a mad rush for not just gold.

Cult_of_Reason's picture

Usually those devaluations happen overnight without any prior warning. It will be too late to rush for anything after the fact. The price of gold in HK dollars will spike up instantaneously in milliseconds after the announcement.

InjectTheVenom's picture

at this point, i'd invest in a Casey Anthony-run daycare center before i invested a penny in a UST long-term

Yancey Ward's picture

Ah, but don't you get it, corporate profits and dividends are about to double from here from all time highs to all time highs thus justifying nosebleed valuations.  In fact, the next major change of  step by the Fed will be to buy stocks.

knukles's picture

El deck-o is el stacked-o for some really really bad negative downright dismal way the Uknowwhat below consensus and whisper number numbers.
Surprise surprise!
And all that there money just sittin' earning squalooch on the banks balance sheets that nobody but the worst credits wanna borrow.
Hear that liquidity!!!!!!!!!!!!!!

slosh slosh slosh


Gonna be a the Sequel to the Flight to Quality All Over Again, Part 2

Here today gone tomorrow.
You won't have the progressive to kick around anymore.
Well, for a few days, at least

Hell, I'm still waiting for those phenomenal 4th quarter holiday retail sales numbers nobody's talkin' about.
Remember in past years within hours HOURS! the Federation of Golly Gee Wiz Trackers of All Thaings Consumer had all the hard data from the credit card companies, etc, etc, etc?
Must be a programming glitch caused by DH&HS and Accenture.


wisehiney's picture

ZH gets a donation if this happens, and drinks on me at the local watering hole.

Professorlocknload's picture

No shit? You mean there's two of us long the 10?

wisehiney's picture

Even a blind, squashed squirrel.......

wallstreetaposteriori's picture

Huh... I must be the only person long the 30 year just below 4%...  figuring all that duration and convexity has to come back the "other way" at some point..

buzzsaw99's picture

may the ny fixed income desks stew in the fetid excrement they have made of the once proud bond market

FieldingMellish's picture

At this point its pretty much a fixed income desk (singular).

ebworthen's picture

Who I feel sorry for is retirees and working people who have their money trapped in the equities casino.

The 401K/IRA  and Jiim Cramer crowd, who are going to get pummeled once again after the insiders take profits.

jballz's picture


ZIRP 4EVA bitchez,

you'll take nothing and like it.

Pool Shark's picture



Yeah, that 0.85% "High-Yield" savings account is looking pretty good...


JamesBond's picture

this chart is correlated to sun spot activity



Loanman26's picture

When the 1.3 million unemployed come out of the unemployment rate

in the next NFP report, the 6.50% Bernanke target will be nearly met. The Bernank

will be scrambling as to why he needs to lower his target to 5.50%.

We've seen too many times when there are too many people on one side of the boat,

the boat usually tips.

Keep the presses going 24/7.

What is the opposite of taper?

My call is that we are going down to 2.35%on the 10.

Party on Garth!!

OC Sure's picture

It won't be painful for those who are already long and its not too late to buy now or keep adding. The long end is entering its 4th up week and i'd look for this run to go 7 to 10 weeks. For the 30yr nearby, the first major resistance comes in around 134. It would be awesome to see it met with lots of put buying; ultimate test is that line through the 2012 and 2013 highs.

When the news comes out explaining the cause of the run, most of the run will be over.

Blopper's picture

After following the stock market for a while, I realize there is persistent misinformation of this and that going around. For example, lower yield is considered the most painful. Care to tell me how painful and why is it painful?

Because from what I know lower yield means bondholders will have gains. It means mortgage holders will have lower debt obligations. It means government debt gets more manageable. Bondholders have no pain. Mortgage holders have no pain. The government has no pain. So who is in pain when the yield goes down?

Misinformation and piles of bullshit misinformation by almost everyone.

wisehiney's picture

You will soon hear the screams of the hordes of t-bonds shorts. Keep studying.

OC Sure's picture

The gist of the article is just to say that if market participants are expecting higher rates and positioning themselves accordingly, then they are in for a surprise which could be quite painful depending on how they may have to unwind those positions. The sentiment in the bond market (extreme bearishness) is the other side of the coin related to equities sentiment (extremely bullish).

The article is referring to being on the wrong side of the trade and not really the benefits of servicing debt at lower rates.

This is not a healthy economy, though. Saving is discouraged. Investing related to real capital formation does not come from savings, instead it comes from controlling the price of interest rates and printing money. Not good.

Blopper's picture

Thanks for the explanation, OC Sure.

wisehiney's picture

Watch for the old head fake before the pain begins.

OC Sure's picture

I think you may be right.  A throwback to around 3.85% looks probable. Accompanied by what, a poke to new highs for the S&P?

OC Sure's picture

I really do think you are on to it here. Here comes the headfake.

If today's highs in the 30yr hold (131.20) and todays lows hold for the S&P futures, then a poke up to at least 1860 is inevitable at a minimum. Aside from the reduced open interest into Fridays close for the 30 yr on lighter volume and a second week in a row of the C/P ratio over 1.25, what gets me on this is the S&P futures. That tiny W pattern for the last 15 days looks like it is just bucking to Bull up. The right thrust down on Jan 13 is much higher volume and at a lower level then the left side of the W's thrust down on Jan 6th...

eddiebe's picture

"When interest rates are low, stocks will grow."

                                                           Old wall-street saying.

SuperCycleBear's picture

Remember bonds represent one thing and one thing only - future ability of the Federal government to tax either income or wealth. If private income or asset markets are unable to shoulder that burden, the real value of debt will decline as that is the only way the US Government would avoid default.


Thinking bonds are default risk free and thus their 'true' price only an average of the cash rate or funding rate for their term, is a mistake.

shawnmike's picture

Usually those devaluations happen overnight without any prior warning. It will be too late to rush for anything after the fact. The price of gold in HK dollars will spike up instantaneously in milliseconds after the announcement.