Vigilantes Waking Up

Several weeks back, just before New Year's Eve, I wrote a blog post here noting what I perceived as the single most important chart for 2022 and beyond.

Without regurgitating everything I said in that post (please go back and read it for reference), I thought it would be worthwhile to revisit it several weeks into the new year and after our first market holiday yesterday. 

Indeed, rates are on the move, and the rate at which the rates rise is likely most important.

On the updated TNX monthly chart, below, we can see as much. Granted, we have just under two weeks left before the monthly candlestick becomes officially complete. However, after four decades of supply side economics and favorable, disinflationary monetary policy, we are headed into a new regime of demand side economics and inflationary headwinds as The Fed tries to fight off inflation. 

While I recognize rates are still historically very low, once again the abrupt rise in rates can cause dislocations, especially given the one-way trends in many ZIRP and TINA plays for well over a decade now. I still expect rates on the 10-Year Note to cross above 2% and, actually, above 3% much more quickly than the majority probably expects. That would correspond with the below chart going above 20, then 30, by the way. 

In all of the analysis I see in the media and by market players, the part which seems to be conveniently overlooked time and time again is that the bond market may not give Powell and his band of merry printers a choice--The bond market may spiral rates upwards without waiting to see just exactly what Powell tries to "methodically" do when he carefully unwinds QE and carefully waits to tighten, and carefully reduces The Fed's balance sheet. 

The fact that this issue is not even being considered by most tells me that there is asymmetrical risk for a bond market event sooner than later--Meaning a sharp, horrifying selloff in the bond market may be more likely than many seem to think. 

Either way, as you can hopefully see, the bond market is starting off 2022 as a major factor insofar as how equities are being repositioned. Let's see if that persists as we head into earnings season and the dead of winter.