Treasury Yields Explode Higher After "Good" Jobs Data

Well, for now, good news is bad news as a stronger than expected payrolls print has reduced the odds of a July rate-cut, sending the dollar higher and stocks, bonds, and gold lower...

The odds of a 50bps cut in July have plunged from 27% to 11%...

10Y yield has exploded above 2.00%...

This could rapidly become a major problem as we previously noted, a trillion-dollar monster is foming in the bond market, "the likes of which has never been seen in decades of history."

The reason: so much debt has been sold at low yields that even a modest bump in yields near record lows "could inflict a world of pain for traders the world over."

The technical terms for all this, of course, is "duration - the measure of sensitivity to interest-rate changes - and specifically duration which is now at never before seen highs for sovereign debt.

This means that even the smallest inflationary or growth impulse - like a favorable outcome from Saturday's G-20 meeting - could send long-end yields surging, resulting in the mother of all VaR shocks, as banks take record mark-to-market losses on their portfolios.

It's also why for some investors, buying duration - i.e., long-maturity debt - is now recipe for career suicide. Some, such as Thomas Graff, say that "buying duration isn’t a great trade anymore." The head of fixed-income at Brown Advisory  said that curbing exposures to longer-dated risk since big bets are already priced into markets, including U.S. rate cuts. “Even if we are heading toward a place of lower rates - or even if the current range is a kind of normal - it’s not going to be a one-way train."

Well, it has been a one-way train for now, the question is what happens when it reverses, and how quickly will the "weak hands" puke, resulting in the biggest MTM losses in bond history.

...

“At one point the market may start challenging central banks about the effectiveness of their monetary policy,” said the chief investment officer. “They may start pricing in credit risk, and that’s going to push yields higher.”

Stocks are sinking...

The Dollar is spiking...

And gold is dumped...