Even for an investment veteran like Gang Hu, the forced unwinding of popular trades in the Treasurys market midweek was among the most violent in his career.
His experience suggested that once bond-market sellofs, like the one experienced in the past week, got rolling, assessments of the appropriate interest rate based on economic and inflation forecasts didn’t matter to where yields were headed in the short-term. Part of the issue in the bond market was that market-based measures of inflation expectations could not keep trucking higher if front-dated Treasury yields were dormant, anchored by the Fed’s accommodative stance.
This is the x-factor I'm concerned about. Bond market is essentially calling the Feds bluff on inflation expectations. Do we see a sell off after the stimulus is passed?