How the Federal Reserve Is Preventing a Bond Calamity
By: Steve Smith
While the moves in the stock market have been wild and the largest we’ve seen in over a decade, it’s the bond market that has seen unprecedented – a word that I and others continue beating to death— and threatened to take the entire financial system down.
Two weeks ago, I wrote how Bonds have Gone Bonkers as the 10-Year Note yield sank below 50bs. That was driven by a flight to safety as the selling in stocks accelerated. The Federal Reserve mostly stood pat and made it clear that they had no intention of sending rates to zero — or even negative yield — as many other developed nations from Japan to Germany have done.
But, then as things turned from bad to worse with businesses being shut down and cities ordering lockdowns we saw a complete reversal in bond prices as yields jumped back towards pre-virus levels. The chart of the “iShares Treasury Bond (TLT)” ETF shows the parabolic move higher followed by a sharp reversal. The market has since stabilized thanks to the Fed takes, yes, unprecedented moves.
What happened was that all… Continue reading at StockNews.com for the full article.