And Another Reason Why Bonds Just Refuse To Sell Off

Tyler Durden's picture

In addition to the countless other reason already presented here over the past year why the bond market simply refuses to sell (scarcity of "high quality collateral", shadow banking lubrication, fears over a slowing economy, reverse rotation by pension funds from stocks into bonds, etc), here is one more reason: today the spread between the 30 Year Bund and the 30 Year Treasury just hit a record wide.

Which means the global correlation arbs, those who know that global liquidity is fungible and in the global yield scramble all yields will converge (right LTCM?), have a wide berth in bidding up US paper, and in fact, based on Bund yields, have never had a better reason to buy the US long end. The catalyst: Europe's triple-drip recession, increasing European deflation, Europe's trade war with Russia and the paradoxical kicker from the ECB, which may or may not launch QE and the threat of which (if not actual execution) will keep pushing yields lower (because once QE is active yields actually rise as per QE1 and QE2 until easing actually ends when there is a "great rotation" from stocks and back into bonds).

Which means to all those bank strategists, traders and pundits who hope, pray and daily recommend that finally yields will rise, but not too much - by just the right amount, to justify the equity stock bubble, will have to wait much longer in the meantime the disconnect between the narrative told by the broken stock market and the broken bond market will continue to grow until one day not even the Fed's backstop of every risk assets can support it.