The Only Thing That Matters For Bond Traders, In One Chart

Tyler Durden's picture

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:

Central bank assets, most of which are held in fixed income assets, are now equivalent to 31% of the $49tn fixed income universe tracked by the BofA Merrill Lynch Global Fixed Income Markets Index (GFIM); and the percentage of global bond market monthly returns explained by the monthly change in central bank balance sheets has dramatically increased in recent years.

And with more than half of bond returns now driven by central banks, BofA goes so far as to say that "Central banks have become the bond market."

BOfA's evidence:

Note how in the past year, the months in which central bank asset purchases have either declined or been very small have coincided with months of weak performance from global bonds (Table 2). This was particularly the case in the fourth quarter of last year and a similar pattern is emerging this summer.

* * *

Of course, this is a problem because with central bank balance sheet projected to decline for the foreseeable future as Citi showed last month, at least until global stocks tumble and/or the next recession hits, it would suggest that yields have just one direction to go.

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Yen Cross's picture

 I'm glad we've got that worked out<  Now we can move on to equities.

nope-1004's picture

My question is:  What part of these "markets" isn't central bank influenced?  You've got treasuries manipulated, gold/Yen carry, Jap equities, US equities, European bonds.....  I mean, wtf.


NotApplicable's picture

Absolutely, central banks have become ALL markets.

NoDebt's picture

Free market socialism for bankers.



Hippocratic Oaf's picture

Sitting in a lot of cash until this bond bubble pops.

Then we pick up yield. Bond brokers version of BTFD. 2008!!!!


NoDebt's picture

By the time you can get yield on a bond you won't want it.


lasvegaspersona's picture

Ultimately all that 'asset' stuff will want to become 'wine, women, song, houses, planes, trains, automobiles, rice, get the point....when there is not enough 'stuff' the prices will rise....unless Janet really does have Utopia command and control figured out.

Maybe she figured out how to make gold out of animal spirits....

Cognitive Dissonance's picture

So much for Central Banks losing their influence. I argue their influence will continue to grow right up to the point of self immolation. They will be at their strongest just before they become their weakest. That is the nature of the process of squandering 'trust'.

The more captured the participants, the stronger the bond is until it finally breaks.

NotApplicable's picture

Luckily for them, they've got plenty of conflicts lined up to distract the herd, as well as the ultimate fall-guy known as "The Donald."

Most people don't give the least bit of consideration as to what central banks are doing.

Countrybunkererd's picture

Everyone is and will pile in until ^^^ happens.  One Example: 40% of excess reserve payments are to foreign banks.  What else can "one" do except get out and trade chickens and baked beans for beef and corn / buy metals on hope a global currency reset doesn't melt and reprice the value to 1/2 of what it is now?

I would like that new F-250 for... ummm, 11,000 chickens please.

Peacefulwarrior's picture

This will look like an over-inflated balloon that gets the knot untied at a birthday party when it breaks. These radical unwinds of energy go in directions and patterns that no one can predict and always with extreme velocity.

ChargingHandle's picture

Which market sector doesn't have central bank's tentacles wrapped tightly around it? Bonds... check, equities... check, energy/oil... check, precious metals, ...check. Central Banks have become viritually the entire market, yet no ine knows what's behind the curtain. Audit the Fed is a dream that will never happen. Who's money is this again?

small axe's picture

and it's all gravy when you can cover your losses with endless paper, or perhaps more importantly, endless bullshit theories that the average person is told they are not competent to understand as the wealth transfer shifts into high gear. 

CBs own us, lock, stock and barrel, if not already, then they will within a few years.

The only way out is an extinction event for this charade of a market, something that will rock the system to the core and collapse the banking cabal.

Dragon HAwk's picture

Aliens show up and tell us Jelly Beans are Money ?

FarCanal's picture

Hasn't that already happened?

SDShack's picture

I've been saying the central banks have had defacto control of the bond markets for years. The banks learned their lesson from the European (Greece/Cyprus) bond crisis on how to neutralize the bond vigilantes. In their mind, when you control the bond market, PLUS have the printing press, you essentially have the means for a perpetual Ponzi. Everyone now realizes the banks totally control all the financial markets...bonds, equities, govt. debt, metals, energy, etc. With this they can continue the can kicking until either something truly unexpected world wide happens that causes their leverage to crash the system, or they choose to implode the system in the greatest false flag in human kind to usher in their New Feudal World Order.

Ink Pusher's picture

I am going to hold out and wait for them to offer 50 and 60 year bonds   LOL

Countrybunkererd's picture

You will not be able to buy or sell unless you get the mark of the beast... no, i mean buy 60 year bonds. 

Ink Pusher's picture

C'mon ,you and I know both know Century Bonds are where it's really at ! LMFAO

Ink Pusher's picture

Incidentally; The "mark "will come in the form of a RFID Gov't Credits Chip Implant after the minions of the global corpocracy have absconded with all the physical currency which will have been long since classified as terrorist contraband .

J J Pettigrew's picture

The central banks front ran the markets
They made what they bought more valuable by dropping rates
This would. be illegal anywhere else

Money_for_Nothing's picture

Read what is on the dollar. Federal Reserve Note. At the very least JFK looking into Silver Certificates made him unpopular with the Fed. It is amazing JFK and his brother lasted as long as they did with so many powerful groups and individuals who wanted them dead. President Trump seems to have a policy of making friends with powerful agencies.

Money_for_Nothing's picture

Central Banks are fighting a passive/aggressive war. Things are coming to a head because the first-world is running out of cheap food. That is the fat part of fat-dumb-and-happy. North Korean Regime change will probably fix the world for another twenty years. China will have a market for its goods and Russia will have a market for its energy. The North Koreans will be less screwed than they are now. Banks will have twenty years to write off their bad loans.

U4 eee aaa's picture

Just wait until business gets it into their corrupt heads that the CBs will be buying their junk in order to preserve the overall bond market

"It's like a license to print money!"

tttan's picture

That is why every major central banks are dovish in their policy to protect their portfolio. Aggressive hike will lead to major loss in their portfolio and also their job. Slow and gradual rate hike will continue to be their mantra for a long time. Note that the fed borrowed about 2.4trillion At 1.25% from the banking system through IOER to finance their entire portfoli of 4.5 trillion, so making a nice spread for the treasury. About 50% of them will mature in 5 years time. see attachment portfolio maturity profile from pimco. what happen if the banks found new investment opportunities which will drain their lending from the fed.?  That is why the fed allows banks to borrow from the public at .05% and lend them to the fed at 1.25% to make them happy.. 

Atticus Finch's picture

High interest will also crash the CDS derivatives paper tower,

ThrowAwayYourTV's picture

Why buy bonds when in 20 years the money they pay you back will be worth 50% less than the bond itself.