Jeff Gundlach and Bill Gross believe we could be entering a bond bear market if the 3% ten year is taken out. The bond market is reflecting this and Hedge funds have not been this short the 5 year treasuries since the taper tantrum. Everyone on seeking alpha also seems to be net short bonds. It looks to me that this could be a potential for a short term rally in guv bonds. What do you guys think? What would be the catalysts to cause a short squeeze? I remember reading a post from @Maverick74 in 2012 when he called the short squeeze in bonds and this looks very similar to me. Thanks
" Question about what moves the Bond market " https://www.elitetrader.com/et/threads/question-about-what-moves-the-bond-market.306529/ " Do you need a real edge trading the Bond market? " https://www.elitetrader.com/et/threads/do-you-need-a-real-edge-trading-the-bond-market.307565/
Let us not forget that going forward for some years the Fed will, in all likelihood, be a net seller as they drain excess reserves and return their balance sheet to more normal levels via selling and attrition of maturing issues. This will have a mild depressing affect on bond prices. At the same time, Fed action will help to balance inflationary pressure created by large deficits. My own read on the situation is that overall inflation will not be quite as great as some are anticipating because of distributional issues related to the Trump tax cut package. As Yogi might have said, we've still got the future to look forward to.
What if they decide to not return to the balance sheet level prior to the 2008 crisis? There is nothing sacred about the prior level. Or is there? As a non economist and non finance person, it seems as long as folks around the world accept the US currency at this level and the wheels not falling of the economic wagon, why not leave it alone?