Bond Bubble?

Every parabolic move has a kernel of truth.  Just because something is going up rapidly doesn't make it a bubble, or irrational.  There are strong reasons backing up the continuous rally in bonds.  I am sure there are a lot of traders shaking their head when they see recent strong inflation and retail sales numbers, and the bonds keep going higher anyway after just a quick dip. 

The bond market could care less about lagging or concurrent economic indicators.  All the leading indicators are pointing towards a weaker economy over the next 6 months, so the bond market is looking ahead. 

The inverted yield curve is a reflection of the large amount of front end supply being issued by the US Treasury, while there is a rush for long end duration as fixed income managers believe that Powell is being too hawkish and slow in cutting rates.  It has nothing to do with a recession signal.  The recession signal happens when the yield curve bull steepens, expecting a Fed easing cycle. 

The short end of the yield curve is much more economically sensitive than the long end, so the bull flattening is actually signaling an economy that isn't facing an imminent recession.  Usually the belly of the curve would be the best performer in risk off moves, but this time, it has been the long end.  This move has been more about a supply/demand imbalance in long duration bonds, rather than a weakening economy.

Stocks are getting pulled from both sides, the bullish side being the lower rates across the curve, the bearish side being the overvalued levels and lack of earnings growth.  It is a tug of war right now, so not much edge right here.  If stocks were to get flushed out in the next few days, that could be a short term bottom, but at SPX 2840 it seems too early here to go bottom fishing.