Bond Markets Are On The Verge of The Short-Term Capitulative “Panic” Mode, Traders Are Buying Massive PUT In 10-Yr T-Bills

Bond Yields Could Be Signaling Global Economy in for a Hard Landing

We are seeing some signs of selling in the global markets.

In Japan, the overblown Nikkei 225 retrenched 1.45% last Tuesday after traders were disappointed that the Bank of Japan (BOJ) failed to offer up new stimulus. Sound familiar?

Just like in the U.S., the economic renewal and surge in Japanese stocks is being driven by the availability of easy money—and traders want more of it. The BOJ’s non-move to inject more stimulus clearly supports my view that the stock market is dependent on easy money.

On this side of the Pacific, there’s concern the Federal Reserve may begin to reduce its bond buying as early as after next week’s Federal Open Market Committee (FOMC) meeting. Of course, I doubt that will happen, given that the unemployment rate increased to 7.6% in May and jobs creation remains tepid.

Based on Credit-Suisse’s Panic-Euphoria model of risk appetite, US bond markets are on the verge of the short-term capitulative “Panic” mode. Each time we have reached this level of ‘selling’ in the last 6 years, Treasury yields have compressed significantly. At the same time, equity risk appetite remains bearish and US credit risk appetite has resumed its decline (but relative to Treasuries they are significantly over-sold). Not a pretty picture…

Bonds hit “Panic” levels of risk appetite…


Chinese debt auction failure raises concerns about liquidity

China’s finance ministry saw a failed 15 billion yuan, 3-month bill auction. Only 9.53 billion yuan of the the bills on auction sold.  “The failed auction is common when conditions tighten,” wrote Robert Savage at FX Concepts. “Shortage of money has been blamed on reserves, tax payments, and the clampdown on alternative financing.” Why people are freaked out about a looming Chinese credit crisis >

Goldman Sachs predicts Bond Carsh! “Quite Ugly Days Ahead”!
Jim O’Neill: Get ready for 4% bond yields, ‘quite ugly days’Bond yields are headed near 4% and not even Fed Chairman Ben Bernanke can stop the “inevitable shock” that’s coming.That’s a fresh view from Goldman Sachs’ s former chief economist Jim O’Neill, writing an op/ed column for Bloomberg on Wednesday, entitled, “Can Bernanke avoid a meltdown in the bond market?”His answer? Not really.
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Bank Of England’s Haldane: “We’ve Intentionally Blown The Biggest Bond Bubble In History”The Bank of England’s Andrew Haldane is not a man to mince his words (see here and here) but perhaps the excess truthiness in his latest testimony to British MPs may have many questioning his ability as a central-banker (unable to lie when it is required).”Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history,” Haldane said.”We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.”As Canadian Carney steps into the BoE head shoes, it seems Haldane has some (indirect) advice there also, as The Guardian reports his comments that the committee had not been “entirely free” of political interference during the crisis; and that he hoped to “improve decision-making,” in a less hierarchical, more diverse, somewhat humbler organization.”The “biggest risk to global financial stability… would be a disorderly reversion in the yields of government bonds globally.” he said, adding that there had been “shades of that” in recent weeks.
Massive PUT buying in 10-Yr T-Bills.Big bet interest rates going up.

Junk Bonds acting rather Junkie of late! Next key move is…


The Power of the Pattern shared that Junk Bond ETF’s were creating bearish rising wedges on 5/24, suggesting a two-thirds chance junk bonds would fall in price. (see post here)

The above 2-pack reflects a breakdown in price and a breakout in yields for a Junk bond ETF and a preferred Dividend ETF. Both are nearing short-term support, where a bounce is due!

The key to the bigger puzzle on junk is the inset chart, reflecting that effective yields on Junk are breaking higher (bullish for yields/bearish for price) from a bullish falling wedge and rates are still very low on a historical basis!


Celente: “It’s all about stimulus and when it’s going to stop. Here’s our forecast and you are hearing it (here on KWN) first: We believe they are going to keep levels of stimulus high enough into the new year.

The reason (for this) is they have to boost retail sales during Christmas time. They are going to do everything they can to keep this economy looking strong. And then, I believe they (central planners) are going to taper back. They are going to have to taper back.

And when they taper back, that is when you are going to see the real collapse start to happen….



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