Tag Archives: Treasury Bonds

A Three-Sigma Bond Market Black Swan Warning To Stocks

The Big Daddy Bond Price Black Swan

Bond market extremes often mark important turning points in the S&P and other markets. The March 2015 peak in T-Bonds is consistent with the crash in crude oil prices, the peak in the US dollar index, and the peak in the S&P 500.  March may be an important turning point in all four markets, in addition to increased trauma relating to Greek debt, war in the Ukraine, war in Yemen, the AIIB (Asian Infrastructure Investment Bank), US credibility, and an acceleration in the use of other (non-dollar) currencies in global trade.  – Gary Christenson, The Deviant Investor

Gary Christenson has published an incredible statistical analysis of the 30-yr U.S. Bond market.   The long bond hit 165 on March 25, marking an all-time high.  More interestingly, it closed up nearly 12% from February’s month-end close.   This was a 3.61 standard deviation change (i.e. a 3.6 sigma event) in terms of the average monthly rate of change over a data series that goes back to 1977 (In 1977 the 30yr bond became part of the Treasuries quarterly refunding operations).

As Gary points out in his article, linked above, a 3.6 sigma move in the bond market is about as rare an event as a major league pitcher throwing a perfect game (27 batters, no hits, no walks).  This has occurred just 23 times in more than 300,000 games played over 135 years.  In economic parlance, the March move in the long bond – aka “the Big Daddy” – is a Black Swan event.

The last time the 30yr bond experienced a 3-sigma move was November 2008, just as the Government was moving $800 billion from the Taxpayers to Wall Street.  This time around the Too Big To Fail banks have their next collapse pre-funded with $2.6 trillion in excess reserves sitting at the Fed collecting interest (this is where most of the QE ended up).

Had the Fed not already pre-planned the next market collapse by insulating the banks with $2.6 trillion of crash insurance, it is likely that the stock market would have already crashed by now.

HOWEVER, we have seen a collapse in the price of oil and a slow-motion collapse since early 2011 in many key commodities (copper, lumber, sugar).  The  Baltic Dry Index recently hit an all-time low and is bouncing along a historical bottom.  Everyone by now knows that the retail sales have entered what appears to be a monthly free-fall (on a relative scale for retail sales) and the labor force participation just hit a low not seen since 1978.   In other words, it would appear that the the U.S. economy is starting to experience a de facto collapse.

The Fed will not be able to keep the stock market propped up like it has forever.  Every day the stock market remains at the current level or moves higher, it becomes further dislocated from economic reality.   While most analysts point to p/e ratios and remark that the current market is not the most overvalued in history, they fail to mention that the comparisons are not valid.  If today’s earnings were adjusted using 1990 accounting standards, the current p/e ratio of the S&P 500 would be, by far, the highest ever on record.

In my opinion, the Big Daddy Bond Price Black Swan which Gary Christenson has eruditely identified, is the warning signal that a serious accident in the stock market is somewhere close by.

30-yr Treasury Yield: “The Economy Is Collapsing”


We know that inflation is running a lot higher this year – true inflation, that is, and not the phony Government CPI.  Thus, low inflation would not explain the 80 basis point drop in long bond yields since January 1st.   “Flight to safety” would flow either into the very short end of the yield curve or into gold or under the mattress.   Therefore, it is apparent to me that the Treasury bond market is starting to price in economic armegeddon.   This will mean deflation of asset prices (stocks, homes, crappy Wall Street concoctions) but not necessarily deflation of necessities.

With retail sales, auto sales,  and home sales all collapsing, the only explanation left is that the Treasury bond market is pricing in a severe economic downturn.    This would explain also why high yield bond spreads have widened considerably over the past month.  The big drop in oil prices this week would further affirm this.

For anyone who is reading this and has invested in my Easy Trade Idea from the end of July, I used to today’s low volume pullback in the stock to add to our position in the fund by shorting slightly in the money puts that expire tomorrow.  If the price closes below the strike tomorrow, we will take delivery of more shares with a cost-basis reduced by the amount of put premium we collected today.

Belgium “Adds” Another $40 Billion Of Treasuries – Russia Is The Seller – The Fed Is The Buyer

I would first like to note – in response to anyone who might think that China is a “clandestine” buyer of U.S. Treasuries – that per the latest monthly Government report on “Major Foreign Holders Of Treasury Securities” (report link) China’s holdings of Treasuries during the time period that has been examined has declined.  Also please note that Russia’s have declined by $50 billion since the end of October:

(Please click on the chart to enlarge)


I also want to emphasize one last point, for anyone trying to find evidence of the Fed using dollars to buy the bonds using the Fed’s Flow of Funds Statement or Balance Sheet.  The Fed engaged in a large dollar/euro currency swap facility with the ECB (European Central Bank) a few years ago.  It is highly probably the dollars used to fund Belgium’s account to purchase the bonds were sourced from the ECB, which is why the trade from Russia to the Fed using Belgium as the beard was executed through the Euroclear clearing and settlement system, which just so happens to be domiciled in….Brussels.

Please see this article:  The Fed’s Covert QE , which has been featured in:

Global Research – Center For Research On Globalization
Information Clearing House