u/Basaltic_rocks — reddlx

Debt Markets Still Very Deep

NVIDIA recently tapped the debt market for liquidity and it was spectacular. While auctioning only $25 billions, investors showed a willingness to deploy more than that as they came in with more than $80 billions.

It is clear that the cooperate bond markets are still deep. I think this showed that liquidity in the system is not really a problem as many are saying. Regardless of what happens, the yield curve is still very much normal. There maybe fault lines somewhere but it’s clear that giant players are not finding it hard with liquidity issues. The cooperate bond markets is still very deep for the proven institutions.

u/Basaltic_rocks — 14 days ago

▲ 22 r/bonds

Focus is on what can be controlled - GDP

https://preview.redd.it/whhiqxwn314h1.png?width=2924&format=png&auto=webp&s=6c06cbc9ff407cdcafecf407cb16e029fc40256a

This chart is the yield spread between the US10Y & US02Y. I posted a few days ago and pointed out what I was thinking about the US30Y reaching +5%, and someone commented yesterday, sort of throwing a dig at me for fear-mongering. This is not fear-mongering, so let me explain why.

I hold the view that cash is still the best place to be, as the risks in the bond market are telling. Usually, when the long end (10Y+) is rising, and the short end (2Y-) is falling sharply as the FED lowers rates, this creates a bull scenario as we saw in July of 2023 with this yield spread at -1.09%. Of course, markets had termed out their debt at the lower rates they got in 2020, which ensured liquidity wasn't a problem. Today, we see spreads in positive territory as the long end seeks a fiscal and supply premium (from the overissuance of short-term debt by the Treasury). Take into consideration the oil-induced inflation that is not going to go away just yet. I know the ultimate crystal ball is the inversion of the yield curve, but that hasn't happened as we stay flat, and we are past the "rolling inflation".

However, we have to pay attention to the tight spreads on junk bonds at ~ 2.1%. They have been tight for a while now, and historically, just a credit crisis could cascade everything. Though I come off as an alarmist, you have to agree that the bond market is being very cautious.

They (government) have looked at the equation, and the only factor/variable they can control is GDP, but the problem is that they are relying on AI to deliver this. No matter how you look at this, something is brewing; bond spreads are saying so day in, day out.

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u/Basaltic_rocks — 1 month ago

▲ 192 r/bonds

Tough Road Ahead

The trend is US treasury auctions have shown that the government is still very comfortably getting the money it needs from lenders to fund its operations but what is clear is that these auctions have become increasingly expensive. Bond buyers are still massively US hedge funds and entities while foreign central banks have eased their purchases.

What I see is, contrary to what Fed Chair Warsh has been saying, he would be forced by the markets (bond vigilantes) to continue increasing the Fed Balance sheet.

Finally, the recent surge in yields or bond sell off hasn’t really been priced in by the stock market and other risky markets. My theory is that they seem to be holding off seeking equities massively as they anticipate the Trump admin may finally capitulate on Iran and quenching higher inflation fears. No matter what, the bond market has already made the first move as always.

u/Basaltic_rocks — 2 months ago