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Jan. 10, 2018, 9:47 a.m. EST

A bloodbath for bonds? Here’s the tipping point to look out for

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By Barbara Kollmeyer, MarketWatch


Warner Bros/Everett Collection
Here’s where the crazy starts?

First Japan, and now China, is getting markets — notably the bond world — stirred up.

Bonds are the topic du jour, especially after the Bank of Japan got everyone a bit worked up yesterday by trimming its government bond purchases. Then this morning, Bloomberg reported China is considering cutting back on its U.S. Treasury holdings.

Timing is everything. That news has been tanking stock futures and setting up a tough morning for U.S. government paper. That’s after the yield on the 10-year T-bond /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.59% hit its highest since March yesterday.

With stocks trading at record highs, some do worry that stocks could get hurt if bond yields start flying higher.

Some big voices have been weighing in on the topic, notes Kit Juckes, global macro strategist at Société Générale. Bill Gross declaring a “ bear market in bond land ,” and then DoubleLine’s Jeffrey Gundlach’s talk of an era of quantitative tightening. (Gundlach also thinks the S&P 500’s rally party will end this year)

In our call of the day, Juckes lays out where he thinks the line in the sand for a bond bloodbath lies.

“I’ll believe the bond market has turned when 10-year TIPS (Treasury inflation-protected securities) yields have broken 1% (and nominal yields have broken 3%),” he says in a note to clients.

“That is where yields ran out of steam in the 2013 Taper Tantrum, as the selloff in asset markets (notably in EM), prompted the Fed to soften its tapering stance and change its forward-guidance.”

Here’s his chart:


Société Générale

It's worth listening to what Deutsche Bank’s strategist Jim Reid has to say on the topic while you’re at it:

“We think we’re at a turning point for the technicals in government bonds around now and perhaps as the technicals turns, selloff can occur more easily than when we were at peak QE and peak technicals,” Reid writes in his daily email to clients.

Reid says if you really want to “turbo-charge any bond selloff,” you’re going to need inflation beats.

“We think there’s a decent chance we get closer to this after Q2 this year, but before that, Friday’s US CPI is an obvious focal point in which to test the bond market,” he says. Indeed, here’s why that will be a litmus test for bond buyers.

Also check out: Bill Miller says this is what will trigger a 30% stock-market melt-up

Key market gauges

The DJIA /zigman2/quotes/210598065/realtime DJIA +1.30%  , S&P 500 /zigman2/quotes/210599714/realtime SPX +0.27%  nd Nasdaq /zigman2/quotes/210598365/realtime COMP -0.39%   have all kicked off the day lower. Asia stocks eased back, except for the Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -0.63% , which nailed a 10-year high. European stocks /zigman2/quotes/210599654/delayed XX:SXXP +0.30% are also running into some bumps.

Oil prices  have been hitting fresh three-year highs ahead of an update on U.S. supply data.

Risk-off jitters have sent the dollar /zigman2/quotes/210598269/delayed DXY +0.17% lower and gold  higher.

Check out the Market Snapshot column for more.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.58
+0.01 +2.59%
Volume: 0.00
Aug. 10, 2020 5:07p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,791.44
+357.96 +1.30%
Volume: 362.50M
Aug. 10, 2020 5:12p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,360.47
+9.19 +0.27%
Volume: 2.57B
Aug. 10, 2020 5:12p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
10,968.36
-42.63 -0.39%
Volume: 3.70M
Aug. 10, 2020 5:16p
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/zigman2/quotes/210598030/delayed
HK : Hong Kong Exchange
24,377.43
-154.19 -0.63%
Volume: 1.26M
Aug. 10, 2020 4:08p
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/zigman2/quotes/210599654/delayed
XX : STOXX
364.65
+1.10 +0.30%
Volume: 0.00
Aug. 10, 2020 11:03p
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/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
93.60
+0.16 +0.17%
Volume: 0.00
Aug. 10, 2020 5:24p
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