Bonds keep pushing it

Paid subscriber analysis

We have averted the government shutdown over the weekend, and how did the markets react? A sell-off. Some might say counter-intuitively, but not us.

Why? Because of what we talked about last week. No shutdown means the budget goes through, the deficit is at 5.7% of GDP, and those $1.5 TRILLION will need to be financed by issuing new long duration debt. Therefore no surprise that bond yields ended up at 4.8% for the 10-Year T-Bill, and over 5% for the 30-Year on Tuesday.

The bond market sell-off (in anticipation of a new supply of bonds) once again pushed equities into a sell-off. And that’s the story of this week. A bounce (squeeze) on Wednesday, but overall, very much in line with our expectations.

How long will this continue?