The view of yields going lower is one of the greater consensus crowded ideas at the moment.

“Everything” is pointing to lower yields, but they are stubbornly ticking higher. The 30-year bond auction today was a disaster to put it mildly. 

As we pointed out a few days ago, the rates narrative, rates going lower, risks changing rapidly, and will catch most by surprise.

The crowd is very tilted, both in their view, but also the way they are positioned, for rates going lower. The US 10 year is currently pushing the 2.12% level. The trend channel is intact, but things could become further volatile should we see the 10-year yield jump above the negative channel highs around the 2.20% area.

Source, Tradingview

The 20-year Treasury bond ETF, TLT US, is having a big day down today. The channel is intact, but we have not seen such a big candle lower in a very long time.

Risk parity funds are puking today. Add the CTA crowd to who is feeling the pain today and there are enough players caught wrong in this crowded trade. 

There is still room lower before we reach the trend channel lows, but the bigger question is whether the “sudden” moves in crowded rates space could spill over to other assets.

Bear in mind, summer has started and liquidity is drying up. The narrative has not changed yet, but given the past days price action in yields, things could start to get interesting.

Our view is still that equity index volatility is trading on the cheap side, offering interesting options plays, depending on your view and/or hedging needs.

Source, Tradingview