COT Blue: Which Bond Rout! Was It Really?

The only way to change the meaning of a word like “transitory” is to put together a constant string of temporary factors that when taken individually keep with the traditional definition but in combination completely obliterate it. Something happens to knock inflation off track, and then just as soon as that one thing is about to abate and inflation is about to happen the next comes along to foil the trend.

Such a view, especially stretched out over so many years, might be better characterized differently. It might not be an unfortunate series of transitory disruptions rather than a constant negative pressure misinformed by mistaken interpretations. In other words, you might think there are “transitory” interruptions to the recovery/inflation scenario but what you are really doing is fitting that bias onto a baseline that doesn’t actually include either of them.

It’s how these BOND ROUTS get made:

“There is no mojo” for bond bears, said Ward McCarthy, chief financial economist at Jefferies LLC. “Seems we are looking at another Q1 slowdown.”

This quote taken from yet another Bloomberg article professing “The bears in the Treasuries market just can’t seem to catch a break.” Maybe there are none to be had. Bill Gross said February’s payroll report, the one with the headline above +300k, should wreck the 10s in price to finally and definitively deliver over 3% in yield. What, then, does March’s +103k do to them?

When you start to realize there is no difference between either of those two headline Establishment Survey estimates, they are both bad, then you can appreciate why when it seems everyone and their mother (and brother) is short UST’s the 10s still don’t seem able to break above that psychological barrier.

Inflation hysteria has died down simply because there was nothing really backing it. For a while, it seemed like there was some minor probability that things might be changing with better economic stats. These proved temporary, however, and more often related to nothing more than the predictable aftermath of last year’s big hurricanes. For hysteria to be other than emotion, the economy better start living up to the idea in concrete fashion.