Recent plunge in US and global yields has been remarkable. Financial media and pundits are now competing to explain how low yields will go.

Surely, there is no inflation and the global economy is not doing overly well, so the fundamental reason for yields to stay low is valid. The problem is the fact that the recent big move lower is getting ahead of itself, at least for the short term. US 10 year has a huge level at the 2% area. This is of huge “psychological” importance.

Bond volatility, the MOVE index, has surged as yields have collapsed, and the convexity effect has been hitting the bond space.

Below is the chart of the MOVE index (white) versus US 10-year yield (orange). Note that practically every major spike in the MOVE index has coincided with a reversal bounce in US 10 year yields.

One of the ways to express the above view of yields about to bounce here for the short term is to short the TLT US. The trend channel is very strong, but note that even inside this trend, the TLT US has retraced.

Source; charts by Bloomberg