What Bond Traders Are Saying: “It Won’t Be Pretty”

With rates seemingly flip-flopped today (yields higher as stocks drop), we thought it worth skimming what the smart money in the bond market is thinking. As RBS Strategist Bill O’Donnell warns, “Janet must act like a diving instructor, hoping to bring levels to the surface without giving the economy the bends. What makes it really risky for Janet is that financial sector regulation has created a ‘one-way valve’ in secondary market liquidity. Nobody really knows how the system will hold up under duress.” This is confirmed by Scotiabank’s Guy Haselmann who fears, “the Fed will have difficulties controlling market gyrations and its potential loss of credibility from troubles that are likely to arise from its exit strategy.”

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