FLASH CRASH IN 10 YEAR TREASURIES

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“A Shift from the FOMC: As the Fed has opened the door to using balance sheet reduction in lieu of rate hikes – bond bears are running for the hills. As we head into a busy week of Fedspeak, we believe capital gains are found by discounting the obvious and positioning for the unexpected. In a world full of crowded trades searching for alpha – these words ring more true today than in years past. As the wild mob is rushing for the exits, we want to be short bonds.”

Bear Traps Report, Monday June 26, 2017

The U.S. economy slow down is not as bad as most feared. Q1 GDP came in better than initial estimates due to unexpectedly higher consumer spending and a jump in exports, beating expectations and providing a slightly more encouraging outlook for growth this year. Gross domestic product increased at a 1.4% annual rate instead of the 1.2% pace reported last month, the Commerce Department said in its final assessment for the period on Thursday.

Breaking: Inflation in Japan, Fastest since 2014

Consumer prices excluding fresh food advanced 0.4% in May from a year earlier, the fastest gain since December 2014, when the impact of a 2014 sales-tax hike is excluded (estimate 0.4% ).

Hawks at the BOE, BOC, ECB and FOMC

A hawkish turn from Janet Yellen and Mario Draghi have some now looking for a reflation trade revival. A focus on financial conditions. The prospect of four of the world’s five largest central banks moving to tighten policy at the same time is shocking traders after years of easing, with the dislocations in money markets also rippling through global bonds.

10 Year Bond Yields in June

UK: 0.92% to 1.25%
US: 2.12% to 2.28%
Germany: 0.22% to 0.45%

Bloomberg

Hawkish Quotes from this Week

“some removal of monetary stimulus is likely to become necessary”

Bank of England’s Mark Carney

“deflationary forces have been replaced by reflationary ones.”

European Central Bank’s Mario Draghi

“rate cuts have done their job”

Bank of Canada’s Stephen Poloz

Bond Flash Crash

10s CrashLast week’s crowded long bond trade is unraveling quickly. A colossal seller kicked off a flash crash this morning. Positioning in long U.S. Treasury positions recently moved from very short to a crowded long – today bond bulls are running for the hills.

Deregulation Reflation

A Hidden $1T Stimulus: Trump could repeal enough regulations to give a $1 trillion boost to the economy, just ask Treasury Secretary Steve Mnuchin. We get into what’s going on behind the scenes in Washington. Much of the Dodd Frank re-write can be achieved with executive orders – this is a reflation boost in the wings… <read more here>