[deng]

It means that they are not being bought. Normally, if the stock goes down, treasury yields go down because investors use them as safe havens for their money, so there's higher demand for them and hence the yield goes down.

So why isn't this happening now? There's probably a bunch of reasons. It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be enough liquidity, but it seems people are rather holding on to their cash and not invest in anything. However, it seems still treasuries are being sold like crazy. For a while, even gold went down, which is also highly unusual during a market crisis. One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. In itself, this does not bring much money, but it seems this is done on a huge scale, and it's currently going very wrong. Now they are getting margin-called and need to sell assets.

At some point, the FED would normally intervene and buy treasuries. However, the FED still has a ton of treasuries from the COVID crisis on its balance sheets and I think they will not intervene until the market has gone quite a bit lower, so I'm still invested very much bearish, although I lost quite a bit from that when Trump announced the delay, but two days later and we're already close to being back where we started and I could kick myself why I even reacted, but you can't win in this game when it's so distorted, so I'm mostly staying out now and just leave my few remaining PUTs open, and I guess many do the same. The US economy is now fully dependent on the whims of a corrupt president, whose friends currently surely make a ton of money on insider knowledge, so there's zero trust in anything anymore.

[candiddevmike]

How can you be bullish after all of that? Tariffs are still on for China, and the administration has been caught manipulating the market. You're either in cash or holding the bag while they tank the market.

[deng]

Sorry, I meant bearish, I edited my article... :-)

[Fade_Dance]

>It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be liquidity.

This is a normal relationship. The financial system has leverage. When liquidity dries up and sellers dominate, volatility rises which feeds back into valuable risk metrics and realize portfolio volatility. That causes participants to downsize their exposure to keep the same risk. In these cases the participants don't necessarily have extra liquidity to deploy until after volatility and uncertainty settles.

>For a while, even gold went down, which is also highly unusual during a market crisis.

During a true crisis this is actually not that uncommon. In the trading space, you saw what you can during these events. In extreme circumstances where correlations all go to one even the safe havens get sold off to raise cash. The gold liquidation was a sign of pressured margin metrics and very high stress. You can see how quickly gold recovered after the peak stress, confirming that situation.

>One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures.

The basis trade is more of an arbitrage than a speculation. The global eurodollar system (not currency, global offshore dollars) is about 20 trillion dollars in size. The basis trade is essentially a method in which regulated US financial markets are exported to The world at large to be used in the global, emergent financial system. Instead of buying a treasury directly, one can use the futures/eurodollar market, and the basis traders will arbitrage the difference and keep everything in line.

>At some point, the FED would normally intervene and buy treasuries.

The issue that the FED is facing isn't so much their balance sheet capacity but the tariff-driven inflation outlook and how it interacts with their mandate. That said, they did clearly communicate today that they would be willing to step in if there were severe signs of systemic instability. The reality is... if tariffs really do cause an inflation wave, yields at 5% may be relatively low...

[deng]

Thank you for these insights, I appreciate it.

[UncleEntity]

I heard a rumor that China has been dumping some of their dollar-denominated assets as a sort of "bad dog" reaction to the current state of affairs.