How the Federal Reserve Is Preventing a Bond Calamity

by Options Sensei |

While the moves in the stock market have been wild and the largest we’ve seen in over a decade, it’s the bond market that has seen unprecedented – a word that I and others continue beating to death— and threatened to take the entire financial system down.

Two weeks ago, I wrote how Bonds have Gone Bonkers as the 10-Year Note yield sank below 50bs.  That was driven by a flight to safety as the selling in stocks accelerated.  The Federal Reserve mostly stood pat and made it clear that they had no intention of sending rates to zero — or even negative yield — as many other developed nations from Japan to Germany have done.

But, then as things turned from bad to worse with businesses being shut down and cities ordering lockdowns we saw a complete reversal in bond prices as yields jumped back towards pre-virus levels.  The chart of the “iShares Treasury Bond (TLT)” ETF shows the parabolic move higher followed by a sharp reversal.  The market has since stabilized thanks to the Fed takes, yes, unprecedented moves.

ishares treasury tlt chart

What happened was that all… Continue reading at for the full article.

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