Bond Bulls Best Day Since Brexit Amid Bomb Tests, Brainard Bombshells, & Barometric Behemoths

Well that escalated quickly…

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Since North Korea ‘escalated’ by flying missiles over Japan, there’s only one clear winner – but today saw bonds starting to catch up…

From Friday’s close, futures show Sunday’s opening drop and then the pressure come back on as US opened after Labor Day…

All the major indices fell and stabilized relatively uniformly…

Thanks to an afternoon VIX smash…

S&P managed to cling just above its 50DMA…

VIX across all the major indices jumped today but did not fade like it did last time…

FANG Stocks were unable to stage the same epic squeeze after the NK missiles over Japan plunge…

Insurers were pummeled… (down over 7% from pre-Harvey highs

Treasury yields crashed 9-10bps today as they caught up with all the chaotic headlines of recent days… even 2Y Yields tanked 6bps after Brainard backed off her uber-dovishness…

10Y Treasury yields tumbled today to a 2.06% handle, lowest intraday low yield since 11/10/16 – with bond bulls enjoying their best day since Brexit (June 2016)…

The drivers behind the reinvigorated rally come straight from the headlines. Tensions between the U.S. and North Korea have intensified after Kim Jong Un’s regime conducted its most powerful nuclear test. Meanwhile, Hurricane Irma is threatening to strike Florida or other areas of the country and roil an economy already dealing with the devastation from Harvey.

“The combination of North Korea worries, weakness in risk assets, and dovish Fed comments from Brainard have pressed yields back toward the bottom of the range,” Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, wrote in a report around 10 a.m. in New York.