Trader: The "Devastating" Treasury Yield Eruption "So Many Have Feared Looks Likely To Come Soon"

Following the latest barrage of opinions from Wall Street pros on the "magic number" - i.e., the level of 10Y Treasury yields which would cause traders to rotate from equities into bonds...

... here is Bloomberg's markets commentator, Garfield Reynolds, who in his latest Macro View takes a slightly more fatalistic approach, predicting that no matter what the threshold is, yields are now set to overshoot to the top, noting that "the Treasury yield eruption so many have feared looks likely to come soon" and predicting that the concern is that "other markets aren’t prepared for the sort of sustained and substantial sell-off in Treasuries that hasn’t been since for decades."

His full note is below:

Treasury Yields Set to Overshoot to the Top for Once: Macro View

The Treasury yield eruption so many have feared looks likely to come soon. The concern is that other markets aren’t prepared for the sort of sustained and substantial sell-off in Treasuries that hasn’t been since for decades.

Much of the latest move that sent 10s above 3% has been seen as driven by technicals after being initially triggered by a jump in European yields.

That’s a worry because the market has now gone past a series of strong resistance points without significant reliance on a scary set of economic fundamentals -- rising Fed rates, ballooning U.S. deficits, fiscal stimulus, accelerating gains in CPI and crude oil.

Even with the Fed’s implicit confidence that the deflation dragon has been slain, the bond market is in danger of underpricing CPI gains. Five-year breakevens are rising but they have been overtaken by both headline and core inflation figures.

That’s come as crude oil ratchets up in price, overwhelming such long-term bear factors as changing energy-usage profiles and U.S. shale oil production. While recent rallies benefited from unhealthy geopolitics, crude has stayed buoyant even as global tensions eased. That keeps bond traders edgy for signs of fresh inflation acceleration.

It also helps explain why the term premium is back on the move -- on pace for the steepest monthly jump since Trump’s November 2016 election.

There’s plenty of scope for the term premium to keep going as the Fed moves to lessen its repressive sway over the market -- ongoing balance sheet reduction, a Fed benchmark rate getting closer to inflation, and the growing chorus calling for an end to the dot plot.

That all removes certainty, boosting the term premium and volatility.

That rising Fed rate is also creating what may be the single biggest upward driver for Treasury yields -- the jump in money-market rates. They’re on the verge of offering real returns, and beating stock dividend yields, at a time when the Bloomberg Barclays index of T-notes due in 10 years or less is heading for the first 3-quarter losing streak in its 45-year history.

That helps explain why some of the brakes that slowed or stopped previous sell-offs aren’t working -- despite some of the biggest yield premiums on record, foreign holdings have stalled and demand is soggy at auctions. The surge in the dollar seems not to be feeding into bonds and is only intermittently driving stocks, while flows into cash and money market funds have been strong.

It all adds up to a reduction in the haven allure of Treasuries and increases the odds for an unusual overshoot to the top side for yields, one that can devastate a whole range of other assets.


Harry Lightning Thu, 05/17/2018 - 06:37 Permalink

When everyone gets this bearish, its probably time to start buying Treasuries. A little more to the upside in yields, just to get the last stubborn longs to puke.

Or even better, when Gartman says to get short Treasuries, buy with both hands !


chiburashka Thu, 05/17/2018 - 06:42 Permalink

Investing in American or western backed securities and assets is just a losing strategy no matter how much lipstick you put on that pig. 

The empire is dying. It committed suicide years ago, and not too many people took notice of it. 


It's okay not to be a Jew.

nmewn Thu, 05/17/2018 - 07:02 Permalink

6:10 p.m.

A senior Hamas official says the vast majority of protesters killed by Israeli fire during protests on the Gaza border this week were members of the Islamic militant group.

Salah Bardawil says 50 of the nearly 60 protesters killed by Israeli fire were members of the group that rules the Gaza Strip. He spoke in an interview Wednesday to Baladna TV, a private Palestinian news outlet."


Who was that masked man?! ;-)

nmewn buzzsaw99 Thu, 05/17/2018 - 07:55 Permalink

Now buzz, don't be disappointed.

If the WaPo article is disproved it is not I who will be disappointed. 

However Hamas official Bardawil was captured on the above "palestinian" TeeeVeee station saying it.

At this point, the only people disappointed are the one's defending Hamas because Hamas officials can't seem to stop verifying what the IDF is 

So what's the over & under on this guy getting nail gunned? ;-)

In reply to by buzzsaw99

slobbermut nmewn Thu, 05/17/2018 - 09:20 Permalink

Very odd that would be admitted so freely - makes sense as the Israeli snipers do their best to avoid hitting women and children.  This will almost certainly end with the 'internationalization' of Jerusalem with Roman Catholics emerging as the so-called arbitrators...that is when the stage is set; Israel is being fattened for the slaughter when they get in bed with the current Jesuit Pope.  No stopping it though...we are along for the ride now folks - personaal salvation through the sacrificial blood of Christ (NOT the Roman Catholic Church btw) is your only guarantee.

*Don't EVER EVER be conned into accepting the 'mark' on your right hand or forehead...even at the cost of death DO NOT be fooled.

In reply to by nmewn

PharmaBro-teen Thu, 05/17/2018 - 07:05 Permalink

It doesn’t matter which side you’re on - all of the central banks and sovereignties will continue lying as long as they can to keep them in power while keeping us confused and enslaved.

slobbermut PharmaBro-teen Thu, 05/17/2018 - 09:31 Permalink

That is a given mate...but they (central bankers and PTB puppet master 'elites') are only storing up wrath for themselves against the Day of Judgement; have no doubt, God is just giving them the rope to hang themselves with - they will not escape.  Sadly, they are royally screwed for eternity (there is no Scriptural basis for the Roman Catholic doctrine of Purgatory btw...made up out of whole cloth like so much of their stuff)...Yeshua (Jesus) said 'I Am the Way, the Truth, and the Life: no man cometh unto the Father but by me.  Cheers and let not your heart be troubled nor afraid...unless your name is not in God's Book of Life; then you have MUCH more to be worried about than the injustices of this temporal existrence.

In reply to by PharmaBro-teen

You Only Live Twice Thu, 05/17/2018 - 07:41 Permalink

Bond yields will go up as the EU reacts to keeping trade with Iran outside the US sanctions from the US withdrawal from the Nuclear Deal. If the rumours are true and the EU goes from USD to Euros to purchase Oil from Iran, then Russia may ask for the same. There is an OPEC meeting in June and Saudi Arabia and Russia have discussed long-term cooperation in Oil sales which could end up in OPEC ditching the Petrodollar System. If that happens, then expect the bond yields to jump and rather rapidly.

MK13 You Only Live Twice Thu, 05/17/2018 - 08:12 Permalink

Well, the 'end of petrodollar' narrative sounds great, until you realize dollar is going up. SP500 has days with high positive correlation to dollar and then flip, inverse like yesterday. Therefore there are 2 obvious trends - volatility is going up and emerging markets (not oil backed) are going down. Makes one wonder how long will US equities tolerate VIX up mantra ala January 2018.

Who said empire is going down without swinging for the fences?

In reply to by You Only Live Twice

Money_for_Nothing You Only Live Twice Thu, 05/17/2018 - 08:19 Permalink

So what? As far as I know the US isn't buying much from Russia. The Euro-dollar market is where the pain happens. Go long French farmers. I think French farmers could use the Russian business. UK and European Banks are going to say ouch. China, Russia, and Europe could have full employment by signing onto Trump's North Korea initiative. Iran is so Obama/Jimmy Carter. The Ohs. North Korea is the Tens. Chinese Democracy is the Twenties. Look out Xi!

In reply to by You Only Live Twice

east of eden Thu, 05/17/2018 - 09:54 Permalink

First, it was Gundlach predicting that 2.6% on the ten year would be the point at which markets broke. Then, it was the 'magical' 3.05%. Now, it is, according to some unknown 'trader', 3.25%

The truth is, that now that Japan and Switzerland own 80% of your stock market, there may never be a crash, whatever the interest rates.

I doubt you will see either the Japanese or Swiss selling into a falling market, which will of course limit the damage, unless of course the FED gives the Wall Street joos lots more free money so they can short it.