Bonds China, from Jim Sogi

October 12, 2018 |

I've been pondering the big drop in bonds and the China moves and if they signal something was up.

Looking at bonds, I wondered why they dropped, who had the means and the motivation to cause such as drop. Looking at the move it appears concerted and done with virtually unlimited selling power. Game theory looks at means and motivation. Trump's recent lambast of the Fed gave me the clue. The Fed has the means and the motive to raise yields and they have expressly said they would use interest rates. They have a large inventory to sell, and rather than move the short end, moved the long end, maintained stimulus with the positive curve, but raised yields and thus put a bit of a damper on the works as we saw yesterday in the equities. The bond market is much bigger than equities so such a tectonic shift was bound to have repercussions. I was surprised how little comment resulted.

The other player who has the means and motivation is China. By raising yields, they strengthen the dollar by enough to offset any tariff, and encourage trade with China.


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