Below is a brief excerpt transcribed from Friday's edition of The Macro Show hosted by Hedgeye CEO Keith McCullough.
We have a gnarly situation that’s developing here with the 10-Year Yield.
I do not know how it is going to end, but I know how I am going to risk manage it.
- We have a higher low on the 10 year yield in our Risk Range.
- We have a much higher level at the top end of the range than we’ve had any other day. Its not around 88bp, its at 119bp
What that means, is that it’s becoming probable that if bond yields get through 88 basis points, they can go to 119 basis points no problem. Be prepared for that.
Lastly, the Fed came in yesterday and bought a bunch of maturities.
The bond market bounced, but then it failed.
The Fed knows they have a problem here. This is not going to shock any of our subscribers, because all I really care about is the volatility of Volatility. In the bond Market, the equivalent of the VIX is called the MOVE Index. When the MOVE moves (when the standard deviation of risk starts to widen and risk ranges start to widen) you end up in a place where the Fed tries to tone that down.
The Fed is not willing to, and should not be willing to let the fulcrum point of risk management in Treasuries fail.
I think what’s going to happen here is that the Volatility is going to continue to rise in a potentially short window of time. You had plenty of opportunities to book gains across the curve with short term, medium term, and long term Treasuries.
Here you have it.
If you are executing on my process, you would know there is nothing in my process that shouldn’t have had you selling some, taking down your gross exposure to Treasuries across the curve when bond yields hit their all time lows.
