The Fastball Behind Strike 3

For a brief few weeks, reopening euphoria gripped the bond market. Well, not the bond market exactly, it was limited to the commentary surrounding a minor back up in nominal yields. Really, not much. This culminated in the May 2020 payroll report which was released on June 5. That was the one which “surprised” everyone because, apparently, nobody pays attention to what’s factually going on.

But, again, why wasn’t this expected? All this payroll report confirms is what we already knew – the economy is being reopened. Quite naturally it will lead to millions of Americans heading back to work. You deprive tens of millions of the opportunity to leave their house and attend to their jobs, once allowed they’re going to flood back in.

And that represented the apex of the 5s30s inflation hysteria. What was that all about?

The 30s are up (in yield) a miniscule amount (31 bps since mid-April, hardly a selloff) while the 5s continue to trend lower. In other words, the bond market still views the economy as full-on depressionary. This is hardly good news (bad steepening) and doesn’t signal anything other than atrocious conditions as far as the eye can see.

Now that the long end is back down again, you don’t hear anything about the “steep” curve and its definite, guaranteed, write-it-down-in-stone prediction for money printed inflation.

Because it never happened. This was how you knew things weren’t working out, even then on what was supposedly the economy’s best run since March. Again, what I wrote in early June:

If this is all they got in the bond market to suggest the slightest hint of “money printing” and recovery…

How the mighty BOND ROUT!!! has fallen. Now if only they could figure out why.

This helps explain where we are today, why Jay Powell’s struck out on three straight pitches. Despite so much hype, that’s all it ever was. The smallest molehill fashioned into the mightiest yet ultimately fictitious BOND ROUT!!! mountain. Predictably, it just fizzled after a few days.

To keep the fantasy alive now, today, without being able to put the 5s30s or any part of the curve down on its side, all that steepening nonsense has now intentionally been replaced by a misinterpretation of both gold and the dollar. 

Like the 5s30s at the outset of June, if that’s all they got (and it is) to suggest the slightest hint of “money printing” and recovery…


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