Bonds: It's The Long End That Gets You

We'll probably  be droning on about 10 and 30 year action for a few more months.*

ZeroHedge seems to be all over the action today, with three posts in the run-up to the close.
Here they are, newest first:

Stocks Pump'n'Dump After Bonds Biggest Bloodbath Since Trump's Election
Wed, 10/03/2018 - 16:01

Fleshwound or Death blow for bonds?
Yields spiked by the most since Nov 2016 (the day of and following President Trump's election).

NOTE - After 1430ET, bond were suddenly bid (and stocks sold off).
30Y yields spiked to the highest since Sept 2014...

10Y yields spiked to the highest since June 2011...

5Y yields spiked to the highest since Oct 2008...MORE

And: 

This Is Why Bonds Are Crashing, According To Bill Gross
Wed, 10/03/2018 - 15:52

Late last week we highlighted the sudden spike in various dollar basis swaps (i.e. funding costs) amid what appeared to be a widespread, dollar shortage, and judging by the sharp spike in the dollar in the days after, there indeed may have been a scarcity of greenbacks in the market.

Specifically, we showed the cost to hedge FX risk moved sharply higher for foreign investors that hedge USD corporate bond holdings by rolling 3-month FX forwards. On an annualized basis the 3-month hedging cost jumped 47bps to 318bps for JPY/USD and 23bps to 323bps for EUR/USD. As shown in the chart below, the one-day move in the 3 month EUR swap was the biggest since the financial crisis:...

“Euroland, Japanese previous buyers of 10yr Treasuries have been priced out of market due to changes in hedge costs,” Bill Gross tweeted Wednesday. “Gross: (2 of 2) For Insurance companies in Germany / Japan for instance, U.S. Treasuries yield only -.10% / -.01%. Lack of foreign buying at these levels likely leading to lower Treasury prices.”

...MORE

And a bit earlier:
Wed, 10/03/2018 - 14:46

Stocks Suddenly Stumble As Bond Yields Spike Into "Danger Zone"

Also at ZeroHedge: "Planet X? Mysterious Planet 'The Goblin' Redefines Solar System"

*As we mentioned a couple months ago, the Fed mucking about at the shorter end isn't were you want to focus, rather it will be the dramatic increase in Treasury issuance, and participants reaction to same that will determine the course of events.

From a September 21 post, acknowledging we didn't nail everything but caught enough to be on the right side of the equity up-move: 

"Mortgage Rates Head to 6%, 10-Year Yield to 4%, Yield Curve Fails to “Invert,” and Fed Keeps Hiking"

Not exactly the scenario we were looking for back in July but close on a couple particulars, more after the jump....

Our July post was "Signals From the Yield Curve: It's the Long End That Gets You" :

This forecast is so close to our thinking that I did a double-take when I first saw it.
The only thing I can add is to point out that these are dynamic systems, that any changes to the trajectory have implications for where we end up so this scenario is not preordained.
But that's the way to bet. At the moment.

It's possible that the tariff-and-currency war of 2018 slows things down enough that the Fed pauses, stops bumping up the short end or that Treasury issuance is large enough to drive the long end higher but for right now, this is where we're at....

The combo of a rising long end combined with a slowdown due to tariff concerns has proven accurate only for the first half of the combo. We reiterated it in August's "10Y Treasury Yield Tops 3.00% After Surprise Supply Increase":

As foretold by the prophesy:

"..It's possible that the tariff-and-currency war of 2018 slows things down enough that the Fed pauses, stops bumping up the short end or that Treasury issuance is large enough to drive the long end higher but for right now, this is where we're at..."

—Signals From the Yield Curve: It's the Long End That Gets You, July 22

I know we've gotten a bit obsessive with the whole "the yield curve does not matter" but it is important. The recession chatter is early, if not flat wrong.
We'll have some ideas if and when the curve matters for equities and the economy but right now there are more pressing concerns.

If interested see also:
June 29
"Who’s Afraid of a Flattening Yield Curve?" 
March 11
San Francisco Fed: "Economic Forecasts with the Yield Curve"

And from last December:

Interpreting the Yield Curve: Counterintuitive Stimulative Effects of Rate Hikes
The writer, David Andolfatto is Vice President of the Federal Reserve Bank of St. Louis.
Views should in no way be attributed to the Federal Reserve Bank of St. Louis, or to the Federal Reserve System. 

Neither should the blog be taken as an endorsement of the fashion sense of the Federal Reserve Economics Data clothing line:...