Raging Bull in Bonds

The baton was passed from equities to bonds in 2014.  And bonds are running away with it, leaving the equities in the dust.  There is really only one official safe haven government bond market that is relevant.  US bond market.  The German and Japanese bond markets have been nuked to ground zero.  Those markets trade by appointment, in between central bank purchases.  Completely distorted beyond any recognition.  There is only one defacto "true" bond market, and that is Treasuries.

It just so happens that Treasuries are the only safe haven bond asset that provides any meaningful yield, with German Bunds at 0.19%.   It is still stunning to see how quickly the Bunds went to those levels from a year ago.  It was a one way freight train to lower yields, strengthening European economy be damned.

I underestimated the effect that the German Bunds would have on Treasuries, thinking that they are two totally different markets.  And while that is true, the collateral effect of the Bunds becoming Japanized is that global government bond demand seeking yield is now almost all aimed at Treasuries, providing a lift like Michael Jordan had when he dunked from the free throw line.

The only thing holding back bond buyers was a possible Fed rate hike, but if you take that off the table, and the last Fed meeting went a long ways towards that objective, then you have a free for all to gobble up Treasuries as there are no bear catalysts.  In fact, if the Fed doesn't hike this year, I would be surprised if 10 yr Treasuries did NOT trade down to 1.00% by 2016.

I overestimated the amount of dumb money that would panic more after the strong jobs number last month, hoping for a 2.30% 10 yr to buy Treasuries.  Instead, March 6 ended up being a grand buying opportunity for bonds.   I doubt if we go back up to 2.17% on the 10 yr, which is where we closed 2014 at.  

The reason I say this is that I don't believe the equity market can sustain its bull market for more than a few months before falling apart.  If the equities fall apart like I assume, then the Fed is completely off the table for a minimum of 6 months, perhaps a year.  This clears the runway for investors to pile into bonds like there is nothing else worth buying.  It will be TINA, but in bonds, not stocks.

Watch for this later this year, but it could happen as soon as this month, depending on when equities crack.  That is a matter of when, not if, IMO.  Equities are a ticking time bomb to explode to the downside.  On the other side of that equation, bonds are a ticking time bomb to explode to the upside.  And that explosion just might be happening right before our eyes.