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Updated, April 11, 2017 at 9pm
Safe haven assets advanced after the White House press secretary issued a warning to Syria and as tensions over North Korea surged to the highest level in over a year.
Ten Year Bond Bull Market
Lower Yields, Soaring Bond Prices
Yes, Wall St. was all beared up on bonds for 2017. If we close at this level on 10s (U.S. 10 Year Treasury), it would be the best mark since November 15. For the fourth year in a row, the Street’s consensus has been dead wrong on bond prices.
*YEN STRENGTHENS PAST 110 PER DOLLAR; FIRST TIME SINCE NOV. 18
*Gold Miners GDX is up 3.1% today and 15.7% since March 9th.
All the Asia Risk Off Indicators are Surging:
Yen
S Korea CDS
Cost of borrow on S Korea Equities
Gold
Treasuries
VIX, highest level since November 10th
VIX Futures Curve flattening, most since November 7th
Divergence
The Euro was lower against the Japanese Yen for 11 consecutive session, that’s the longest losing streak on record. The Yen is seen as a safe haven refuge in a rising Asia risk off environment. The Yen’s surge is viewed confirmation of the N. Korea high drama. In recent weeks we’ve witnessed a sharp divergence, the cost of default protection on S. Korea has surged relative to their neighbors in Asia. South Korea is a substantially stronger credit than Thailand, nearly five levels higher per Moody’s. On the other hand, the cost of insuring the South Korea’s bonds against default is now more expensive than Thailand’s, a powerful divergence indeed.
Treasuries, Reflation Trade Hype Faces the Deflation Risk
Wall St lectured their clients on the “reflation trade” in December, they were unanimously calling for a STEEPER yield curve. If you look above, the curve is FLATTENING, not steepening. As investors grow more concerned about the growth initiatives coming out of Washington, they’ve been loading up on bonds. Key technical levels are being violated as the reflation trade loyalists panic out of their positions.
U.S. bond yields fell following Federal Reserve Chair Yellen’s confirmation the central bank has shifted gears from post-crisis healing to sustaining economic gains. Oil wobbled after five days of gains as EIA data due Wednesday was expected to show U.S. stockpiles retreated from a record, Bloomberg reported.
“I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem!
North Korea is looking for trouble. If China decides to help, that would be great. If not, we will solve the problem without them! U.S.A.”
President Donald Trump, April 11, 2017
Gold and Treasuries strengthened with the Japanese yen on lingering investor concern about global security risks and the path of U.S. interest rates. Crude struggled to extend this years.
Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 3:05pm ET
Pick up our latest note here:
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereSouth Korea 5 Year CDS
The cost of default protection on South Korea rose to the highest level since July on the surge in geopolitical nerves. S. Korea’s stock loans for short-selling hit record high amid the tensions.