US 10 year yields daily
US 10 year yields daily

I've written plenty on bonds today and here's where we stand:

1) Lots of talk about Japan

The blowup started with intervention so that's where it likely lies. It started in the belly of the curve and that's the duration that reserve managers like to hold. Others though argue that the MOF would have plenty of bills and short-dated USD to sell before they'd need to sell bonds. Still, people could be front running it or (most likely) it could be Japanese investors selling Treasuries on FX risk. That's what I think is happening because running that trade with the FX unhedged has been such a winner but it's a good time to be open minded.

With that, the thinking is that the BOJ raising rates and/or ending yield-curve control could be the next step. There was no hint of that today but that's not the kind of thing you drop hints about before doing. Watch next month's Japanese inflation data.

2) The fiscal side

UK gilts led the selling today on more spending and fewer taxes. That could be reverberating.

3) Plain-old 'sell everything' on uncertainty

There's so much going on today. No one knows what will happen with inflation and central banks are no longer a bond bull's friend.

4) A squeeze?

Leveraged bond longs could be getting blown out here or some kind of fund could be blowing up. That's a scary thought.

But here's another theory

It comes back to the dot plot. There's no one on the FOMC pushing for rates above 5% next year and the Fed will surely pause there. But what if inflation is persistent?


In that case the Fed might not want to hike rates further but what other options do they have? One would be further quantitative tightening. The Fed has insisted they're on auto pilot but there are some influential people outside the Fed arguing they should be using QT.

It's just a theory but the odds of more QT are rising.

Importantly, bond yields are coming in a bit here now that Europe has gone home and that could turn risk .Watch the TIPS auction today.