Today's edition of all is not well in the bond market.
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The Move (the "VIX of the bond market") closed today at 158.12. This is its second highest print in 13 years.
Since 2009, the only day higher was March 9, 2020, arguably the worst market day of the pandemic.
2/7
Every time the MOVE gets above 155, the Fed is having emergency meetings (to cut to 0% or print), bailouts are being constructed, and/or bond traders are running around with their hair on fire.
Given this, is it safe to assume all is well this time around?
3/7
Add to the mix that liquidity is worsening, as measured by Bloomberg.
This level of illiquidity occurs when the bond market is dysfunctional.
4/7
And BofA's Financial Stress Indicator is getting materially worse by the day.
Again, is/should this be a concern?
5/7
As noted above, in the past, when this was the backdrop, the Fed was cutting to zero and printing like mad.
Now, however, we have ongoing QT and the market STILL pricing in a 75 bps hike at the next FOMC meeting (Nov 2).
6/7
The bond market is very big, very opaque, and very complicated. This is why it blows up regularly (GFC 2008, repo 2019, COVID 2020, now???). What have been the warning signs trouble is brewing? The tweets above!
The bond market seems to see this, note the blue line!
7/7
So I ask again, is this tweet thread a bunch of things that are not concerning this time around? if so, why?
Or does this tweet thread tell us there are big problems under the surface?
Q: Is this why the S&P 500 has been in a relentless decline over the last few weeks?
EVERYONE, PLEASE DISREGARD MY TWEET THREAD ABOVE ABOUT CONCERNS IN THE BOND MARKET.
I JUST LEARNED THAT JANET YELLEN SPOKE EXACTLY ONE HOUR AGO, AND ALL IS WELL, NOTHING TO SEE HERE.
The deficit as a % of GDP (bottom), now 5.93%, is higher than in any period except the Great Recession (2007 - 2009) and the 2020 COVID shutdown (dotted line).
The government is borrowing to spend money like the economy is trying to recover from a recession.
2/6
This separates Federal revenues (orange) and spending (blue).
The difference is the deficit (middle panel).
The bottom panel (black) shows that taxes only cover 73% of federal spending. The other 27% has to be borrowed.
3/6
Yearly federal spending is $6.24 trillion or 22.3% of the US economy (or nominal GDP).
Like the deficit chart above, the only time the government has spent this much as a % of GDP is when trying to get the economy out of a recession.
The 13Fs are a disappointment. Very little wealth manager adoption so far (like 1%).
Unrealized gains are shrinking fast.
Why I've been skeptical of Spot BTC ETFs.
2/7
* March 11 = only $1B inflow day.
* March 12 = Brokerage report saying $220B of inflows over the next 3 years (effectively predicting constant inflows, forever).
* March 13, all-time high close (5PM ET price)
Since the mid-March frenzy, inflows peaked (top panel).
3/7
The 3/31 13Fs are coming out, and they are disappointing for those who thought a big boomer wave of buying BTC ETFs through wealth managers was underway. Only odd lots.
IBIT has only 27 13Fs with more than 10,000 IBIT shares (~$360k), way less than 1% of outstanding shares.
Economists’ median estimate for tomorrow’s payroll release is 215k. Estimates range from 150k to 250k.
Note that February was initially reported as 275k. So, every one of the 61 forecasts has payrolls declining from last month.
2/5
Since the beginning of 2022, economists have often underestimated the actual payroll release.
During these 26 months, economists underestimated payrolls 22 times.
3/5
The BLS surveys 120k "establishments" employing about one-third of the US labor force.
Lately, the survey’s response rate has been falling and becoming an issue.
The February payroll report’s initial response rate was 66.9% (blue line), which is higher than January's 56% (and December's 49%) but remains low compared to past decades.
As the red and purple lines show, the BLS follows up in the ensuing months to get the missing responses. But even these are falling.