Since 1990, one trade that has always lost money, over any reasonable time period, has been the shorting of JGBs (Japanese 10-year). This trade, unique in its consistency, developed its own name; “the widow maker”. With JGBs yielding 57 bps today, the widow maker is alive and kicking. Over the past 24-year time period, JGB yields peaked around 8% in 1990, and trended steadily lower since. Within the US bond market, through the second half of 2013, into 2014, consensus developed on the inevitability of a sell-off, and potentially severe one. A one-sided consensus view is always dangerous in any market, creating heightened risks as new information is gleaned. The recent bout of inconsistent economic data, and degree to which active market participants were on the same side of the canoe, drove a sharp rally in the bond market, lower rates, and finally, a re-think on consensus views. CJF is not surprised by the action and leans dovish with respect to US interest rates for several reasons. Moreover, growth scares, as they develop, are actually a positive for the stock market – this notion is counterintuitive; economic data soften which weighs on revenue growth opportunities, but, for well positioned companies, […]
Since 1990, one trade that has always lost money, over any reasonable time period, has been the shorting of JGBs (Japanese 10-year). This trade, unique in its consistency, developed its own name; “the widow maker”. With JGBs yielding 57 bps today, the widow maker is alive and kicking. Over the past 24-year time period, JGB yields peaked around 8% in 1990, and trended steadily lower since. Within the US bond market, through the second half of 2013, into 2014, consensus developed on the inevitability of a sell-off, and potentially severe one. A one-sided consensus view is always dangerous in any market, creating heightened risks as new information is gleaned. The recent bout of inconsistent economic data, and degree to which active market participants were on the same side of the canoe, drove a sharp rally in the bond market, lower rates, and finally, a re-think on consensus views. CJF is not surprised by the action and leans dovish with respect to US interest rates for several reasons. Moreover, growth scares, as they develop, are actually a positive for the stock market – this notion is counterintuitive; economic data soften which weighs on revenue growth opportunities, but, for well positioned companies, […]