US 10-year Treasury yields finished the day 23 basis points higher to 3.92% but what has me most worried is the final 4 bps on the day. There was a la
US 10-year Treasury yields finished the day 23 basis points higher to 3.92% but what has me most worried is the final 4 bps on the day. There was a late drop and that has me worried about liquidations or someone blowing up.
You would expect to see some rebalancing flows into bonds this late in the month/quarter but the opposite is happening. At best that means fund redemptions but it’s all worrisome and we’re at the point now where rumors about the downfall of firms start to spread.
By the same token, these are supposed to be the safest asset in the world and those who have to mark to market are getting crushed.
Here’s the take from BMO, who says:
” The most eye-catching aspect of Monday’s repricing was the impetus – or specifically the lack thereof as it was only the ongoing moves in gilts that received any fundamental credit for pressing the repricing. Said differently, thin liquidity
Liquidity
Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange market – it is the world’s most liquid market, since numerous banks, hedge funds and individual traders partake in the buying and selling of vast cumulative amounts currencies every single day. In fact, over $5 trillion is exchanged daily, as mentioned by the Bank of International Settlements. If a trader wants to go long on the currency pair EUR/USD, they will have no trouble in finding traders wanting to go the opposite way, due to such ample liquidity. The EUR/USD is the world’s most liquid trading instrument, in any market. It is extremely easily bought or sold, with an immense quantity of trading activity for the pair. Liquidity reflects the quantity and the frequency of the asset that’s being traded, i.e. the more an asset is traded, the more liquid that asset is, making it virtually effortless for the asset to be bought and sold.Likewise, the less an asset is traded, generally the less liquid the asset is, making it more difficult for that asset to be bought or sold. It goes without saying that liquidity is one of the key attributes a trader looks for, when deciding on whether to pursue trading an instrument, since it tells the trader how stable a market is despite masses of trades being undertaken. This is exactly why the forex market is so enticing, since its liquid environment allows massive trading volumes to occur without much effect on the currency pairs’ exchange rates.
Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange market – it is the world’s most liquid market, since numerous banks, hedge funds and individual traders partake in the buying and selling of vast cumulative amounts currencies every single day. In fact, over $5 trillion is exchanged daily, as mentioned by the Bank of International Settlements. If a trader wants to go long on the currency pair EUR/USD, they will have no trouble in finding traders wanting to go the opposite way, due to such ample liquidity. The EUR/USD is the world’s most liquid trading instrument, in any market. It is extremely easily bought or sold, with an immense quantity of trading activity for the pair. Liquidity reflects the quantity and the frequency of the asset that’s being traded, i.e. the more an asset is traded, the more liquid that asset is, making it virtually effortless for the asset to be bought and sold.Likewise, the less an asset is traded, generally the less liquid the asset is, making it more difficult for that asset to be bought or sold. It goes without saying that liquidity is one of the key attributes a trader looks for, when deciding on whether to pursue trading an instrument, since it tells the trader how stable a market is despite masses of trades being undertaken. This is exactly why the forex market is so enticing, since its liquid environment allows massive trading volumes to occur without much effect on the currency pairs’ exchange rates. Read this Term and a wholesale disinterest in catching the falling knife leaves us reluctant to fade the move just yet. While risk assets came under further pressure, we’ve not yet seen the flight to quality feedback loop we ultimately expect will cap the increase in yields as the fallout of 4% becomes more apparent.”
They also warn that there’s a 5-year auction tomorrow and four of the past five have tailed.