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Comment by SilasX | Hacker News Reader

I'm just confused at today's drop in long-term government bonds (and thus increase in interest rates) -- normally they go in the opposite direction of the stock market, which is what it's done this year. Vanguard's long-term govt bond ETF (VGLT) is up 13% so far this year:

https://www.ytdreturn.com/vglt/

Edit: rephrase to clarify what I'm confused about

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Here's a potential explanation quoted by Matt Levine in his March 13 newsletter:

“The risk in the current environment is that sustained illiquidity of the UST market … could cause leveraged UST investors to reduce their Treasury positions on a large scale. This would essentially result in a Treasury ‘supply shock’ as these funds reduce their positions & force dealers to sell those positions in a very illiquid market. Significant position reduction from one large leveraged UST investor would likely lead to a cascading effect whereby U.S. Treasury yields rise sharply and force liquidations from other similar investors. This would worsen conditions for dealers to intermediate risk in the U.S. Treasury market, exacerbate the rise in U.S. Treasury yields, and further cheapen Treasuries.”

But haven't the Fed's constant injections (like the recent $0.5/1.5 trillion one) indicated it's going to keep the Treasury market liquid by buying them all up at par?

One thing that can absolutely be happening is people just pulling money out of whatever assets they have, due to margin calls, risk reduction, etc.

That would explain why all assets are going down.

High yield muni bonds and other high yield bonds were hit especially hard, now down farther than stocks even.

The yield of a bond is inversely related to the price you pay for the bond. The prices are going up, thus the yield is going down.

To be clear: the price you pay to buy a bond is going up while the price you pay to buy a share of stock is going down. It is exactly how you expected, you were just looking at the wrong number.

No, I meant that government bonds today are going down (yield up) while stocks go down. I mentioned the good performance of government bonds YTD as indicative of their normal behavior, i.e. going up (yields down) when stocks go down. I realize now I was phrasing it poorly. Since edited.

This is confusing to me too. The best explanation I've heard is that the market is expecting a future increase in bond supply (gov bond issuance to fund coronavirus mitigation measures), which would drive prices down and yields up. This future price pressure is being priced into bonds today.

Bitcoin crashed as well and gold isn't overperforming either. So rather than having a huge transfer of assets from stocks to bonds/gold/bitcoin like we've seen during past periods of market volatility, I think we are seeing falling prices across all the forementioned asset groups.

The one open question for me is Real Estate (I work for a small commercial real estate developer). REITs are down 20%. My contacts in the Broker community have told me individual property sales transactions have dried up due to an inability to do property showings combined with no interest from buyers or sellers to make big moves until things shake out. RE moves slow so we haven't yet seen how this dynamic will impact sales prices.

>This is confusing to me too. The best explanation I've heard is that the market is expecting a future increase in bond supply (gov bond issuance to fund coronavirus mitigation measures), which would drive prices down and yields up. This future price pressure is being priced into bonds today.

Interesting! If so, maybe we could see an end to the financial markets' seemingly insatiable demand for Treasurys?

I don't know about the demand side but supply is definitely going up around the world. For the massive stimulus packages in the US and Europe lots of new bonds will be issued by governments. Additionally lots of companies around the world are drawing on their credit lines which means banks need to reduce their treasury holdings for USD. The only question that seems to matter is how high will central banks allow yields to rise?

Hard to say right now, but it's likely that bonds won't go up again until people believe the rate of new bond issuances will go down.

On another note, the federal funds rate is at zero but bank stocks are cratering anyway, possibly because Trump announced there will be no foreclosures/evictions through April. So landlords and homeowners have no incentive to pay their mortgages for a couple months, which will definitely hurt banks.

Got it :)

The President mentioned something about wanting to backstop money market funds, so that may be part of what you are seeing.

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