In this video we look at the prospects for a QT (Quantitative Tightening) tantrum for the bond market. The video walks through a couple of slides of a recent edition of the Weekly Macro Themes report.
In the video we look at a couple of key preconditions for a yield spike such as increasingly crowded long positioning, increasingly complacent implied volatility, and how that ties in to the growth and inflation outlook. We also look at some of the vulnerabilities in the market to a spike in yield, such as the large build-up in income related ETF assets under management.
This part of the market, often thought of as low risk, or even risk free, could be subject to material capital losses in the event of a bond market tantrum, so much so that it could swamp any income banked from these so-called income oriented assets. Goes to show that total return, not just income or growth, needs to be front of mind. The key near term event or potential catalyst will be the September Fed meeting.