Bond market gyrations are yanking us into uncharted territory | Financial Times

Until recently, the so-called $TLT exchange traded fund which tracks long-term Treasuries seemed dull as ditchwater. The price used to move in tiny increments with modest trading volumes, making it suitable for widows and orphans risk-averse investors, in other words.

Not now. On Tuesday there were 71mn daily trades of the ETF, many times higher than usual. And the price has fallen 3 per cent this week alone, and is now 20 per cent down on the last six months, and 50 per cent since early 2020. That exceeds even the stock market rout after the dotcom bubble.

What should bruised investors conclude? There are five key points to understand. The first is that the current bond market pattern is not repeat, not just a replay of what we have seen in recent years. When the US Federal Reserve started hiking rates 18 months ago, short-dated yields rose as short-term bond prices fell (these move inversely.) 

However, long-term rates did not surge, apparently because investors assumed that inflation and growth would eventually fall. 

This year, however, those long rates have jumped, even though short rates have stabilised (seemingly because central bank tightening is almost over). That suggests that long rates are moving because of deeper structural shifts in the supply and demand for bonds; so it is not just about the Fed.

via www.ft.com

The robots and the aliens had better hurry up if they’re going to save us.