brax

1-day delay on my futures put/call data source but I'll guess the real-time ratio is flirting with the June lows after today's rally. Think mean reversion is the play until we learn more from Fed/Midterms/QRA. 10y is a short below 5.10 and a long above 5.30.

2y leading 10y lately... 2y +14bps from Thursday lows and 4 consecutive up days would suggest the current 10y rally is running out of steam.

Nomura's McElligott on bonds: "crowded bond shorts took profit on hot inflation which ballooned into a short squeeze, then follow thru yesterday/today on good Iran headlines, not yet a true growth scare narrative"

-19bp 10y rally but now put/call skew for bond futures is back near lows and 10y gave back entire NFP rally plus more. Duration still diseased.

Since the June bimonthly central bank governors meeting at the BIS, the BIS has published 3 Bulletins that read overly hawkish. These will be heavily discussed at their next meeting in September. Bulletin 133, Aug19 on TERM PREMIUM: “term premium weakens the currency, heightens concerns that fiscal will constrain central bank independence, raises costs for credit-reliant firms, builds higher inflation into price and wage setting… term premium feeds thru to inflation expectations more rapidly when debt is elevated… adverse non-linearities raise the cost of delayed policy action… paramount for monetary policy to focus firmly on the price stability mandate” Bulletin 131, Aug5 on ENERGY SHOCKS: "inflationary impact of energy shocks twice as large when inflation expectations are above target... tight labor markets intensify wage demands as labor seeks to reserve purchasing power... energy price surge combined with loose fiscal is followed by higher inflation... central bank wait-and-see strategy risks ripple effects such as unanchored inflation expectations and may warrant hiking more quickly" Bulletin 130, Jul28 on AI IMPLICATIONS: "central banks too accommodative if they underestimate demand or overestimate supply improvements... demand effects already large and observable, supply effects remain uncertain on scale and timing... AI capex has not come at expense of less capex elsewhere... AI capex driving upward growth revisions... labor displacement has been limited... uncertain AI translates into higher aggregate total factor productivity... near-term inflationary effects already emerging... AI inflationary if households boost consumption in anticipation of stronger future income... AI wealth-driven consumption can boost aggregate demand and add to inflation... financial markets may lift household consumption thru wealth effects" Notable because BIS messaging tends to lead global central bank messaging. bis.org/bisbulletins/index.h…

Some bond thoughts... 1. Price action feels more short squeezy than fundamental especially with hot cpi/ppi... how many were long tech + short bonds because "only high rates can crack tech" and now forced to unwind both sides? 2. Potential Friday 12pm dealer survey surprise (cut 20y auctions?) is preventing duration sellers from stepping in 3. If spreads behave then next week every corporate will want to issue bonds at these rates, especially with no data volatility, also gets them ahead of potential Fed volatility the following week 4. Bull flattening shouldn't keep going unless equities actually crack but all signs point to rotation not outright selling 5. 2y at 4.70 is only pricing 2 more hikes (remove the last 2 insurance cuts), don't think it can price less hikes without cold inflation prints which are now >4 weeks away 6. 10y at 5.05, who wants to buy 10y with a 4-handle? 4.98 is 50% retrace 7. This is still a long-term bond bear market right? You buy consolidations after breakouts to catch the potential face ripping reversals. Then you reset the shorts. You don't chase reversals until you have conviction in fundamentals changing. I sold my duration longs today and cut my flattener in half. I want to be short duration next week if nothing fundamentally changes by Friday.