On Friday, Bill Gross, in a surprising act of defiance, sent out a tweet that promptly moved the bond market in the wrong direction. To wit:
Gross: Pogo said, We have met the enemy & he is us. I say, All asset mkts peaking; W/o central bank ck writing we only have ourselves 2sell2
— PIMCO (@PIMCO) August 16, 2013
What happened next was certainly not what the Fed and Treasury desired: the 10 Year moved wider to fresh 2 year highs.
While the subsequent release of a Hilsenrumor managed to pull back the Friday yield blowout somewhat the pain may just be starting. Especially for Bill and his hundreds of billions in long rates exposure.
Fast forward to two hours ago when in the latest tweet from Gross there was a distinct sense of desperation. We don’t know if there was a tap on the shoulder from Washington D.C. to precipitate it, but we wouldn’t be too surprised:
Gross: I’m tweeted out – just like the bond market. Must be the bottom!
— PIMCO (@PIMCO) August 18, 2013
Maybe it is. But if the following just released forecast of where the 10 Year is going, from Bank of America’s chief technical strategist MacNeill Curry is accurate, not only is the bond bottom nowhere near but we sense a Tweetstorm is coming from Bill Gross.
After 5 weeks of range trading, US Treasury yields have resumed their bear trend. US 10yr yields target 2.951%/3.045% before greater signs of top emerge. Bulls need a break of 2.730% to invalidate the bearish potential.
While the above is nothing more than a few squiggly lines and their extrapolations, in the New fundamental-less Normal self-fulfilling prophecies (i.e., technicals) have a way of, well, self-fulfilling. The only problem with a blow out in yields to north of 3% is that not only does it kill any mythical housing recovery, it outright obliterates any hopes of a continuing GDP tail wind from the housing market, even from investors, speculators and flippers. We are confident we are not the only ones to notice that the APR on the 30 Year Fixed FHA from Wells just soared to over 6% – a level that has no place in an economy that is “growing” at 1.5%.
But before we lament the end of the great 30 Year bond market, we will simply recall that what is happening now is a carbon copy of what happened two years ago, when all it took for yields to plunge over 100 bps was a 20% drop in equities following the Great Debt Ceiling fight and the US downgrade.
Because there is nothing easier for Bernanke to do (in 15 minutes or less) than to enact a wholesale scramble out of stocks and right back into bonds, when he needs it.
Then only question is “when”?