Bonds get trashed

Published: Mon 11 April 2022
Updated: Tue 22 November 2022
By steve

In Markets.

Monday 11, April 2022

Wrap

Real assets went down, nominal assets went down. The only securities to to well were puts and gold and the dollar. The long-end of the Treasury market is looking under a lot of pressure. I believe that the market does not believe that the Fed can keep hiking without crashing equity markets, but if they stop, it’s possible that inflation will get out of hand.

Mohammed El-Erian wrote:

Over and over again, the Fed felt compelled to use its powerful liquidity-creation weapons to counter asset price declines, even when the risk of disorderly and volatile markets was not apparent. At times, such “unconventional” measures were consistent with the needs of the real economy. Too often, however, they were not.

Like a child successfully throwing tantrums to get more sweets, markets came to expect looser financial conditions whenever there was a strong whiff of instability. This expectation evolved into insistence. In turn, the Fed went from just responding to market volatility to also trying to pre-empt it.

…

Central bankers were not blind to the unhealthy co-dependencies. The current leaders of both the Fed and the European Central Bank, Jay Powell and Christine Lagarde, tried early in their tenures to change the dynamic. But they failed, and were forced into embarrassing U-turns that made markets feel even more empowered and entitled to insist on the continuation of ultra-loose policies.

Monetary policy must serve the real economy not just financial markets

It’s interesting that a major figure like el-Erian basically admits that the Fed’s real mandate was to keep markets going up. We all knew this, but not many checkmarks have said it so openly. I’ve been saying it for ever, as have many other outsiders, but now it’s becoming part of the mainstream narrative.

30-year Treasury Futures (near month) over one month

Tweets

The reason that oil is suffering?

Maybe the west is trying too hard?

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