Zoltan Pozsar on What Just Happened with the Treasury Market

Odd Lots


So joe. it's well. There's been a bit of drama in the treasury market once again. Yeah i noticed. you've got to do one of your tracy. Loa signature things. Were you talk about a move. That happened that's supposed to happen. Like once. every three billion years yes I love talking about those because it really gives everyone the opportunity to show that they've read to books by saying that the world isn't normally distributed but of course out we did see some pretty big moves in the treasury market so first of all the ten year yield jumped up to one point six percent. This was in the last week of february but the really big move came in the five year. And i think that one had something like a seven or eight standard deviation. Move one of those things. That's supposed to happen in like ten million years kind of things and really i know people make fun of standard deviations in sigma events. But really we're talking about the world's most liquid market and stuff like this keeps this. Is i think the fourth big bout of treasury market chaos that we've had in just a couple years so i'm thinking back. We had one in What was it. september twenty nineteen. We had repo madness. Then we had the march joss in twenty twentieth delivered. Us t trades boeing up and then we had a mini rates blowout in october twenty twenty. And now we just had the most recent incident so something is going on and clearly. There is a persistent issue in the us treasury market. There's a lot of things going on at once these days because there seems to be ongoing structural issues questions about liquidity which is weird in a the world's most deep and liquid market and be a market in which the fed is actively supplying a lot of liquidity or very active in the market. And then of course it's interacting with the economic situation nine policy situation because we have this fed that said we're not going to raise rates until the economy hits these benchmarks. Everyone's watching to see the fed's credibility we also have a very rapidly improving economy. We have people warning about inflation for the first time so all kinds of things happening once but yes to your point the big action we've seen we've seen rates at the long end year. Thirty year yields have been rising for awhile since the middle of last year. But it's really the action at the shorter end at striking here. Yeah and of course one of the weird things about last week as you mentioned the economy but we had this big tantrum in bond year yields without a corresponding taper. I guess so. We kind of had a temper tantrum because not that much changed last week. We didn't have fed speakers talking about rates rising or anything like that but we have this huge move in the bond market so a lot of focus on micro structure at the moment a lot of focus on liquidity ease of trading and the overall or of the treasury market. And we have a perfect person to talk about all those things. We're going to be speaking with zoltin. Pose are from credit suisse. I care wait. Let's do it yeah So zoltin i should say in addition to being a strategist over credit. Suisse has also been on the thoughts podcast multiple times. So we will be getting you that tote bag Any day now zoltin. Thank you so much for coming on. Gotten thank you very much for having. I should say one more thing. Which is that every time. There's any volatility in the rates market. Someone ibiza. it says you guys gotta get zoltan on get. It happens every time. Anything takes higher on screen of like overnight funding rates. Whatever like when you have exultant back on the episode so this is a lot of requests for this one. Sorry go on okay. Well on that. No i mean why. Don't we start out with the big question. So every time. There's some sort of chaos in the rates market. Joe gets an ib asking for you to come on the show. There have been a lot of those over the past couple of years and as we were discussing that something you wouldn't necessarily expect for the world's must liquid market so what's going on here. And why do we keep getting these sort of Mini blow ups in rates. I think people get taken out of their positions all the time I mean just to just set the set the stage for the conversation. I think there's there's a number of things that are happening That has happened last week for a number of east now and really since the The democratic when and the blue sweep the treasury curve has been steepening quite remarkable. I mean relative to The slope of curves in germany and france and japan. You know the. Us treasury kirk has gotten quiet. Steve per a number of reasons you had you had The blue sweep. You have the vaccine rollouts. Which is you know happening in the us More rapidly perhaps in other parts of the world you have The market starting to price in recovery The market trying to price in the inpatient and the market is getting Excited about the idea. That book surely comes some fed action and that that is going to try to chase down version of keep it in check and to all of these things. I think have driven the steepening of the curb. But you know the the interesting thing. Is that the steepening of the curve. Has been fairly ordered. Okay and so what happened. Last week was a little bit plumbing related but again the the underlying structural driver of rising yields has been more fundamental.

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