With December rate-hike odds sliding the most since the last FOMC meeting (down from 75% to 70%), following abysmal data this morning, it appears investors are reaching for the safety of Treasuries as either a fed policy error is about to be unleashed and/or growth is signficantly weaker than all the talking heads proclaim. With traders the most net short in years, this rapid plunge in yields could quickly accelerate.
The entire curve is plunging...
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With 30Y almost roundtripping to The FOMC (and back below 3.00%)...
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Given up all the payrolls purge rise in yields...
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The last time the world was this short Treasuries, the 10Y yield collapsed from 3.94% to 2.39% in just 3 months.
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(Chart shows aggregate net short speculative positioning across the entire Treasury futures curve - rebased to 10Y-equivalents)
Simply put, The Fed has created - through its constant communication and confusion - the biggest bear trap for bond traders... if a hike does not come in December, 2010's yield collapse could look like a stroll in the park, especially in the newly illiquid normal.
