Great post as always! Considering the net effect of "BBB" not as dramatic, would you say the market overhyped on the bond vigilante narrative? I'm torn. The US UK JP long bond auction did not going well and swap spread widening as you highlighted obviously suggested investors' need of higher risk premium. Hence, curve steepener, bearish dollar. But isn't such analysis/concern/doom all over people's inboxes and minds now? I don't know if it's fully crowded, but consensus for sure. In short term, I'd rather trade against it. In mid-to-long term, would you say this is a macro theme just getting started and has more legs to run? Thank you!
"Bond vigilantes" can exist in much smaller markets, but can't possibly have any effect on one the size of the US.
A large part of the upset about how bonds are trading in my opinion is we've had such a long period of time (more than 25 years) where bonds were seemingly always bid for a number of reasons. Those days are gone, and the repricing can be difficult to go through. One thing is certain though - if they want yields down they have to stop spending.
Loved the opening re JGBs, thank you. Many hyperbolic takes doing the rounds in bitesized tweet friendly formats so it's nice to see some more detail offered.
Great post as always! Considering the net effect of "BBB" not as dramatic, would you say the market overhyped on the bond vigilante narrative? I'm torn. The US UK JP long bond auction did not going well and swap spread widening as you highlighted obviously suggested investors' need of higher risk premium. Hence, curve steepener, bearish dollar. But isn't such analysis/concern/doom all over people's inboxes and minds now? I don't know if it's fully crowded, but consensus for sure. In short term, I'd rather trade against it. In mid-to-long term, would you say this is a macro theme just getting started and has more legs to run? Thank you!
"Bond vigilantes" can exist in much smaller markets, but can't possibly have any effect on one the size of the US.
A large part of the upset about how bonds are trading in my opinion is we've had such a long period of time (more than 25 years) where bonds were seemingly always bid for a number of reasons. Those days are gone, and the repricing can be difficult to go through. One thing is certain though - if they want yields down they have to stop spending.
Agree! Thanks 🙏
Great post Peter, looking forward to more of Steepening Bear’s Visit bedtime stories :)
Loved the opening re JGBs, thank you. Many hyperbolic takes doing the rounds in bitesized tweet friendly formats so it's nice to see some more detail offered.