Yo, Pit Crazies,

Just another day, just another 2%+ move in stocks.

2022 is shaping up for a realized vol record year.

I keep asking myself why when the post-Covid reopen trade was going to be awesome … And it was – in 2021. 

But we gave it all back and are working on 2020 money now.

The bond market?

Worst year in history so far.

The good thing about bonds is you can hold them to maturity as long as the issuer stays solvent.

Aye, that is the rub. The bond market dog wags the equity market tail.

iShares Barclays 20+ year Govt bond ETF (Ticker: TLT) five-year chart with onte-day candles.

That dog is barking!

Bond Yields Have No Top Right Now

That is the big problem.

Traders are having a hard time pricing this massive drop in wealth.

I realize not a ton of debt was issued in 2020/2021 and 2022, but it was enough.

Also all new government spending, including the last 3 trillion in discretionary deficit spending, will be at higher rates.

That will leave a mark.

Until traders see some relief, expect volatile equity markets.

TLT went from $150 at the beginning of the year to less than $100 now.

On the bright side, these are 2008 levels – except the G7 debt is 50% higher now than then.  The tell was how quickly the UK gilt market snapped into shape after some fiscal sanity prevailed. That was a bit part of the rally today.

I am sticking to the volatility hanging around at least until the election.

Setting up trades around Nov 8, calendar style, should pay well in equity markets.

To Your Trading Success,

AG