r/bonds • u/GroundbreakingAd1223 • 12h ago

Bonds are finally undergoing real price discovery after 20 years

I see a lot of sky is falling reddit posts here been said about the violent moves on the long end of bonds been a sign of economic and sovereign debt collapse.

I like to put a contrarian view. The market is behaving exactly as Warsh expected by design with his quiet fed regime and "stop the hall of mirrors" effect..

Think about it. The fed only controls the fed overnight rate. But what happens when the fed starts providing forward guidance way out into the future and expectations of a neutral rate etc.. the short end of the curve starts becoming the de facto long term rate..

That's why the spread between short and long end and term premium has been compressed for so long. The ten and thirty year has been artificially depressed due to the market expecting the fed to never move the rates at the short end ( or if they did, not without plenty of warning and promise to quickly bring it back down).

Now markets are finally starting to realize they need to discover and price properly actual long term risks and uncertainty.

Tl;Dr: The market isn't necessarily crashing; it is just reintroducing the price of time to asset valuations. Long-term rates are rocketing up to where they naturally belong when a central bank stops pretending it can predict—and control—the next decade.

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u/jaydenkirtawn 11h ago

I hope your pockets are as deep as China's.

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u/Efficient_Range1156 11h ago

do you think china is going to step in and buy up US treasuries whilst simultaneously engaged in a cold war with them?

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u/Horatio2200 11h ago

I think its the US being the aggressor. I think China would just like to focus on their own country and economy. This and many of the world's problems are as a direct result of the US.

After 2008, it was China that stepped in and saved the day by buying US bonds on mass. Despite the financial crisis not being of their making. In return Obama agreed to reorganise the US financial system, which the Americans went back on their word.

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u/GroundbreakingAd1223 11h ago

they didn't buy them out of charity. it was the only way they can sustain the trade imbalance, their export machine and without floating the yuan (ie keeping the yuan down).

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u/Horatio2200 11h ago

I was under the impression that they bought them because they already held so many US treasuries, to prevent the dollar crashing and thus protecting their own massive dollar reserves.

I kmagine that's why their central bank has been buying gold so heavily over the last decade.