Bond rally nearing an end?

Quote from drsteph:

Because the freakin 'spoos are imploding along with the rest of the emerging markets. Flight to safety.

I don't expect any inflation talk tomorrow, that's for sure.
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This day will be remembered as an abberation by the bond market when generally strong economic reports continue to flow which suggest the need for a rate cut, and today's equity market action will be regarded more as a technical (and emotional) action than anything to do with 'real economic' news....

this is going to make for some interesting market action, regardless.

Its pretty clear here the carry trades that unwound today weren't generally financing the buying of treasuries.

besides the slowdown in durable goods orders, watch generally strong reports to pervade..

then people will be scratching their heads running for the entrance doors with buy orders on equities and sells on bonds.

its pretty funny how poop (heh) media is suggesting a china market correction somehow will correlate with a *slowdown* in china GDP and commodity consumption, and enough people buy this line of reasoning. Unless you're the type of person who believes market action can actually cause recession, then it seems outright stupid.
 
As long as there is continued uncertainty in the Equities market, Bonds will continue to be the safe haven and will keep going up.

el surdo
 
Ditto with el surdo. The implication for bonds is the curve steepening we are seeing (flight to quality effect). On the flip side nothing has changed dramatically in terms of fundamentals. The question to be asked is does this credit market repricing from subprime mortgage blowouts effect overall growth. Subprimes are a much larger percentage of the mortgage market than years past so the answer to this question could very easily be yes. On the other hand Fed officials have said the results on the economy of this short-term event will not be long lasting and essentially forgotten within a few months time. Options flows in Treasuries have obviously been skewed towards calls and also those that were short boatloads of 10yr volatility are just starting to puke (while others have deep pockets like Goldy and will keep adding). Because of the spread products widening their has been less mortgage receiving in swaps and convexity worries on this rally than previous ones and that is also seen on the floor as Countrywide is slowly rolling May 108 calls into the 109's along with June 108's into 109's, nothing enormous though.
 
treasury paper is about the only thing that didnt tank this week, and the Yen/Dollar action was bizarre.....

I guess it's high time i panic out of my Long Chinese bicycle tires / Short Russian Vodka trade.....
 
It certainly seems that the recent selling in credit markets has really been concentrated in synthetic credit instruments. Are these leveraged traders just switching from one over valued market to another (sub 4.5 bonds)?

Real money investors are very underweight cash spread products and have a buy-the-dips mentality. So if the selling actually hits the cash market where will the flight to quality bid come from? Today's credit market structure is different from the '97-98 markets, so history may not be the best guide.
 
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