One of the most important things to understand about Bond Markets is that the day to day movements have surprisingly little to do with the fundamentals that the financial economists spend the whole day talking about.

With all the excitement of Covid, US Elections, Robinhood traders and now Bond Markets, it’s been easy to forget our friends over at SoftBank, the company that thinks it’s a bank, or a hedge fund or a Venture Capitalist. Or something.

The post below is the outline text sent for an article in the Australian Financial Review (AFR) looking at the triple threat faced by bond markets. As our recent posts have suggested, we see Bonds as the biggest short and medium term threat to equities, but more important we can see a situation where the yield curve steepens very sharply causing an existential crisis for many bond managers and their underlying investors.

As discussed, the sell off in Bond Markets is also clearing out the trading funds and day traders’ stocks, as they all cut leverage. The short term traders may yet be buyers-on -dips, but we suspect that they have packed their tents and moved off to the Commodity Markets, where Oil and Copper continue to roar.

In the latest Friday Market Thinking, we concluded that the biggest medium term risk to markets was likely to be bonds, given their historic tendency to damage other asset classes as they deleverage.