Morning Report: Yesterday’s bond market sell-off

Vital Statistics:


Last Change
S&P futures 3082 -2.25
Oil (WTI) 56.27 -0.94
10 year government bond yield 1.95%
30 year fixed rate mortgage 4.04%


Stocks are flattish this morning on no real news. Bonds and MBS are down.


There was no catalyst I can see for why bond yields rose so dramatically yesterday. There wasn’t any economic data (initial jobless claims aren’t market movers) and there was no Fed testimony or anything. The 10 year bond yield rose from 1.81% to 1.97% intraday in what was a complete wash-out for the bond market. If anything, it felt like a major asset allocation trade was happening, where investors sell bonds and buy stocks. Many funds will use a strategy comparing the earnings yield or dividend yield on the S&P 500 versus the yield on government bonds. That said, this was a global phenomenon, as the German Bund and UK bond yields have also been heading lower. It is almost as if we went from fretting about a recession to fretting about inflation. Maybe the China deal caused it, and maybe it was exacerbated by convexity selling, but there really isn’t a good explanation out there of what was going on. You can see the dramatic move intraday yesterday. Note that the move started late in Asian trading before the European markets opened and carried on throughout the day.


11-7 bond chart


JP Morgan just did a credit risk transfer deal on portfolio of jumbo mortgages. In these sorts of deals, investors get a above market interest rate in exchange for bearing first losses on the portfolio. It works essentially like an insurance policy. This means two things: first, banks may be the first step in taking some of the burden off Fannie and Fred, and second we may see better jumbo pricing as a result.


Zillow says that its house-flipping business will generate as much as $1.25 billion in revenues. The company reported a loss last night that beat expectations, and the stock was sent up 9% after hours.

31 Responses

  1. I am Rock Hard for the Senate Impeachment trial! The spectacle will be UNPARALLELED!

    The fact that Pelosi positioned this so that the Bernie and Fauxahontas will be kneecapped is (chef’s kiss) exquisite!

    And the eventual acquital and subsequent left butthurt will be the icing on the cake. Finally, my hope that the Biden’s get called and have to testify would be the greatest political spectacle of my life, even exceeding any formal press conference that Trump has done!


    • You think he’s going to be reelected?

      He’s seems off his game since June when he picked the fight with AOC and in doing so reunified the Democrats.


      • biden or bloomberg beat him
        he beats anyone else.

        he will have momentum after the senate fails to remove


      • My sense is he gets re-elected. The power of incumbency is great, and so far there hasn’t been a very good Republican primary challenge to Trump–which is typically a necessary ingredient for unseating an incumbent president.

        I suspect the hostility of the left, the media, and the entertainment-media complex (as well as the twitter-verse and the blogosphere) gives a false impression. And, for obvious reasons, I don’t trust any polling. Not this far out, but I’m not likely to trust it one way or the other even leading up to election night.

        So many factors that typically point to re-election point to it here, so far. If the Republicans really mount a serious primary challenge with serious money–or a Perot-like 3rd party comes in to buy an hour of time on a major network–then the likelihood goes down.

        But right now, I say he wins–the unknown being how influential the hostility of the left and the general entertainment-media-twitterverse complex really is. My guess it’s much less a factor than it feels like it is, and more venerable historical trends are going to win the day . . . but we will know in a year!


      • I don’t see what voters have switched and Republican voting enthusiasm exceeds Democratic enthusiasm.

        But the Senate trial will be fantastic!


  2. Taibbi again:

    “Why Is Christopher Steele Still a Thing?

    The ex-spy and infamous “dossier” author posits yet another elaborate theory of foreign infiltration
    By Matt Taibbi

    Christopher Steele became famous in the United States as the author of a “dossier” that claimed Russians had been “cultivating, supporting, and assisting” Donald Trump “for at least 5 years.”

    Now Steele is back, claiming that the Russians have been cultivating the Tories and Boris Johnson for . . . five years.

    You can’t make this stuff up. The only thing comparable would be Ahmed Chalabi lobbying for a sequel invasion after the WMD hunt in Iraq came up empty, and having the same humiliated media figures and politicians reach for pompoms all over again.”


    • The same reason televangelists are still a thing. Or the same reason people still get roped into scammy purchases all the time. People over-estimate their reasoning facilities, their prediction capacity, and how much they know all the time.


    • In this way, the dossier was published without ever going through a vetting process. For all the talk of hacking, this was a true Trojan-horse penetration of the American news media system (not that most media companies minded, of course).

      I know Taibbi doesn’t like this, but I never had a trouble with Buzzfeed publishing the dossier. At the time, at least, (IIR) they didn’t argue it was credible or try to act like it was established fact, they just published it. It would have been better if they had vetted it, of course, or qualified it more heavily with “some of this seems unlikely to turn out to be factual, and given it was first shopped around in a campaign season you can expect this may have been a packaged October surprise” or something.

      But in the end, they just went with the “information wants to be free”. I far prefer that to the tendency of the press to squash stories they don’t like or that don’t align with their narrative.

      reaction to these memos would be that they were lunatic conspiratorial horseshit on the level of Avril Lavigne dying and being replaced by a clone named “Melissa.”

      So, all this has just been a set up for Taibbi to provide cover for the Avril Lavigne clone. I see what’s happening here!

      Nope. Tapper was mad that Smith had defamed the story by showing where it came from!

      Taibbi should just title all his columns: why almost all Americans hate the press.

      This has nothing to do with Trump, and everything to do with restoring controls that are supposed to exist to prevent the press from leading the public off the deep end.

      He is screaming into the wind.

      When we let stuff like this go, the public sees us as fools, at which point it doesn’t matter whether what we write is for or against any politician, because nobody believes us anyway. Is this really the industry standard we’re gunning for? Are we never going to own up to this one?

      Taibbi obviously will say it was nonsense, but the rest of the press? Nope. Are they ever going to acknowledge that they are awful at their job? People don’t do that. And as long as pharmacy companies want to advertise medicine, they won’t need to. Because it clearly doesn’t matter that the American public doesn’t believe them.


  3. This article asserts that the Trump Impeachment hearing will draw high ratings yet it doesn’t provide any ratings for its examples.

    Also, it didn’t even provide total, or average viewership or ratings for either the Nixon or Clinton Impeachment hearings.

    Finally, what proportion of the population watched Nixon’s resignation versus, say, the Kavanaugh hearings?


  4. The new age of social media censorship is upon us.

    “Facebook and YouTube block spread of supposed whistleblower’s name and photo. Twitter allows both.”

    It will of course backfire, like the MSM refusing to name him and instead just make it a bigger story.


  5. Like

    • Lol


    • “His twin brother..”


      • It’s all completely contrived!


        • Yes, it is. Which is, I think, what’s really keeping them from making progress. Trump did a quid pro quo thing, then denies it–I think it’s reasonable to say “that’s impeachable”, although there would inevitably be a lot of partisanship to that.

          Then they cook up a bunch of obvious nonsense and misrepresentation and Schiff tells crazy made up stories and Vindman appears everywhere in full dress military uniform trying to pull an Ollie North and it’s so obviously propaganda that I think it’s hurt their case. Because there sure looks like there’s a conspiracy out to get Trump–even though at the end of the day Trump did pressure the Ukraine to investigate his primary political rival and then said that call was “perfect” and there was no quid pro quo . . . I think an honest and sober and transparent effort to impeach Trump might have gotten somewhere. At least a lot further than I think they are going to get.


        • The conventional wisdom is that Trump’s motivation was to get dirt on Biden, agreed. I’m not so sure that was his motivation however. He was very interested in Crowdstrike (rightly so, in my opinion) as well as the DNC server. Also, Hillary Clinton was working with Ukraine during the election, there’s an interesting Politico article on it from 2017. I tend to think that Trump was focused on what happened to his campaign during the 2016 election and assumed that since Biden was Obama’s point man on Ukraine and his son was on the Burisma board, that common sense dictates (to him and I tend to agree with him) that Biden and hence Obama was involved. If you read the transcript he qualified his requests in so much “If you could’s” type language that it could hardly be characterized as any sort of quid pro quo, unfortunately, because I tend to thing Trump’s right that the previous Ukranian government were in collusion with Clinton and Biden.

          Finally, if there is anybody with any direct knowledge of a Trump demand that Ukraine dig up dirt on Biden for the 2020 election, I’ve yet to hear it.


        • The conventional wisdom is that Trump’s motivation was to get dirt on Biden, agreed. I’m not so sure that was his motivation however.

          I get that argument and I’m sure the Crowdstrike thing was an issue too. At a distance, I’d read it as a demand that they look into Biden and other things opposed to Trump, and I also don’t think Trump sees anything wrong with doing that. Also it seems really obvious to me that this is business as usual in DC at that level and that the idea that all this is “an unprecedented abuse of power” is malarkey.

          But I don’t disagree that part of Trump’s desire regarding Hunter Biden is to find out how Obama and Hillary might have been conspiring against him. Not necessarily to dig up dirt for 2020.

          I note that every time anybody left-of-center in the media talks about Crowdstrike (and I include the NeverTrumpers, both reasonable and insane), they talk as if the Crowdstrike/Ukraine thing is a crazy insane conspiracy theory. And I don’t feel like that is the case–or at least that it has been thoroughly debunked. But it might have been, I just hear it said a lot as a given that Trump is crazy for talking about Ukraine and Hillary and Crowdstrike and I’m not quite sure that’s the case.

          “If you could’s” type language that it could hardly be characterized as any sort of quid pro quo,

          If there’s were a legal issue, could that be characterized as the case? I feel the quid pro quo is implicit but clearly present. Just the fact it’s the American president asking for it has a kind of implied quid pro quo, in my opinion, and I get the sense it’s a quid pro quo–whether this is legally the case–from the transcript. If someone asked me for my layperson’s opinion, that’s what I’d say.

          Then I’d say if you had the transcript of almost every other leader’s conversations with foreign leaders, you’d see the same sort of thing.

          If you audited the Iran deal and the Paris Climate Accords, I’m betting you’d see dozens or hundreds of things that looked like quid pro quos in the negotiations. Some of them nation-to-nation, so okay, but lots of them benefitting certain individual or corporate parties, so presumably not. I dunno. I think Mulvaney had it right: of course it was a quid pro quo, everything like that is always a quid pro quo.


  6. White Supremacy, is there nothing it can’t do?


  7. I love that this meme has gone viral.

    The reporter’s reaction is hilarious.


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