Bond vigilantes are not going to wait until Labor Day to act

It’s a Friday in July and the commuter parking lots I share with Wall Street and banking executives are pretty much empty.

What this means is I get a front row spot, but it also means the black boxes take on a larger role in today’s trading.

Stocks are down in pre-market slightly as volatility index has a 9 handle, meaning all is quiet, go ahead and take the day off, nothing to see here.

The bond market however, is squeezing even tighter as the 30-year note moves to 2.7 percent handle. This is a more important move for the markets, as Fed chief Janet Yellen and ECB’s Mario Draghi talk about paring down their holdings in US debt securities.

The moves in bonds is negative for all the markets since yields will collapse as prices rise and it will spill over to equities whether through reduced confidence and/or reallocation to cover bond losses.

This is the reason Yellen & Co. fear the bond vigilantes, which want to force the Fed to curtail selling off its balance sheet and continue to roll over profits into buying new issuance.

The timing of this move in the bond markets coincides with the slow season of late July through Labor Day, when everyone comes back from vacation. So to have these moves now, tells us this Fall could be messy in the bond pits.

Just look at the three-month T-bill auctions, which its maturity coincides with the debt-ceiling deadline went upside down this week, suggesting there is growing fear Washington is not getting how shaky these markets are.

1 thought on “Bond vigilantes are not going to wait until Labor Day to act

  1. Pingback: Bitcoin replacing gold as the perfect dollar hedge | Gray's Economy

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