Is the bond market broken?

The 10-year moved 25 bps in a week on basically no news. Something is structurally off in the bond market and I want to talk about it.

It's the supply story. $2 trillion in issuance this year and the marginal buyer has changed. Foreign central banks are diversifying away from Treasuries. Who fills the gap?

Hedge funds and basis traders. Which means the market is more leveraged and more fragile than it looks. The BIS warned about this in their quarterly review.

And when basis trades unwind, it's not pretty. We saw a flash of that in October 2023. The plumbing of the bond market is held together with duct tape.

The Fed's QT is making this worse. They're draining reserves while Treasury is flooding supply. Something has to give. Either they slow QT or we get another repo spike.

For equity investors the takeaway is simple: the risk-free rate is no longer low-volatility. That changes every single DCF model. Growth stocks with far-out cash flows are more vulnerable than people think.

Agreed. I'm positioning for continued bond vol. Selling duration and staying short on the curve. If you're holding long bonds expecting a rally, I think you're fighting the structural tide.