How the Federal Reserve Is Preventing a Bond Calamity

Posted On March 24, 2020 2:37 pm
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.

Tagged with: Federal Reserve

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.