10 Yield Spike Bigger Risk To Markets Than Election?

2020年11月2日

This is the monthly chart of the yield on the 10Y note. VIX Fix shows we put in excess below support (6.00) indicating most bulls have capitulated. Breaking above June yield highs on a strong move out of bonds (perhaps into value stocks?) could bring on a yield of 2.5-3% on the 10 year, a 150-200% move higher. This kind of a spike in yields would eventually bring on a bearish market spiral out of the growth funds/tech stocks, heavily indebted energy stocks, as well as real estate funds. Increasing yields on debt would run the risk of extreme volatility in the corporate bond market, leading to more bankruptcies. Are there enough holders of bonds to squeeze yields higher despite investors' uncertainty? The federal reserve has been buying corporate bond ETF's and can't lower fed fund rates any further without going Negative. This fed buying was front-run heavily by hedge funds who anticipated years of rock-bottom rates as long as the fed provides a floor to bond prices. What could trigger such a yield spike? Most likely a clear winner being called in the US presidential elections, especially if the senate and WH is controlled by the same party. Bonds would sell off (leading to higher yields) as bond holders and those trading the yield curve suddenly realize that the overall market uncertainties which had scared them away from stocks suddenly vanish. While the short-term effect of a rise in yields will be bullish for stocks, expect to see a rotation out of those red hot growth names we've seen run for years along with all other debt-heavy investments like real estate. Their high valuations would be unsustainable with higher yields and a trapped federal reserve.

I'm personally long these growth stocks currently, but plan to sell spikes and potentially hedge in the meantime with a short /ZN 10 year note futures position (long yield).

2021年2月17日

ノート

the long-yield leg of this trade is still working, but the UVXY leg stopped out. Stop trailed to entry at this point, as a rejection of 1.0 would be devastating for yield bulls. Scallop pattern could push yields above 1.6. IF I didn't want to up the stop, the other way to hedge this would be long QQQ.