10-Year Yield Spikes 33%

Lots of guys and gals went home this weekend thinking about the implications of the recent rise in the 10-year Treasury bond’s yield.

Chris Kimble notes it was the biggest 5-week rate rally in twenty years!

So are we bumping along the bottom or is a new longer term uptrend in its nascent stages?

My pal Eric Peters quotes “the Roadrunner”, whom he calls the biggest volatility trader in the market, as to where we could feasibly be headed:

“There were massive sellers of 3mth 10 and 20 delta treasury puts on Friday; vol collapsed,” explained Roadrunner. “They’re players who sell futures against their options and never cover.” For the past few years, these players like Pimco only sold calls and bought futures. Bond prices rose every time to their strikes. “Direction-wise, it’s uncanny how good they are.” Maybe they’re so big, it’s self-fulfilling. “And looking at the flows and the strikes this time, 2.75% 10yr yields in 3mths seem within reach.”

 

Having spoken extensively with financial advisors, fund managers, high net worth investors, asset allocators, mutual fund wholesalers and portfolio managers around the country this winter, I don’t believe the majority of market participants are anywhere near ready for this to be a continuing trend.

Between the alternative fixed income allocations and the “bond-like stock” stuff everyone’s been doing, I think the majority of folks are what you’d call “out of position” right now.

Friday’s turmoil is a sign that people now feel the need to be changing things up. Trends don’t last forever, after all, and playbooks always grow stale in the end.

Sources:

Interest rates up 33% in 5-weeks, sharpest rally in 20-years (Kimble Charting)

wknd notes (Peters Capital Group)