Central Banks May Finally Be Losing Control…(If So…Brace For Impact!!)
June 11, 2013
Why are stocks, bonds, and commodities all looking weak?
Ever since the release of the April employment report on May 3 – which came in better than the market expected, as evidenced by the big sell-off in U.S. Treasuries that ensued – all anyone has been talking about is the dreaded “taper.”
Because the Federal Reserve is by far the biggest player in the Treasury market, the concern is that when it makes the eventual decision to taper back the pace of the bond purchases it makes under its open-ended quantitative easing program, markets could destabilize as a result.
And thanks to the Fed’s introduction of the historic Evans rule in December, which ties the timetable for reversing monetary stimulus directly to numerical thresholds for unemployment and inflation, the Treasury market has become increasingly more sensitive to economic data releases in 2013. When labor market releases like the employment report bear a positive surprise, bonds tend to get crushed.
Sure enough, since the release of the April employment report on May 3, the bond market rally that began in mid-March has reversed, and Treasury yields have shot up to their highest levels in over a year.