The bonds that bind

We are inside a month before the US presidential election with plenty on the line as the race is still too tight to call.

But the bond market is telling us there is plenty of tumult to come as Treasuries are selling off hard over the last two trading days.

The fear of a rate rise cannot be the reason for the change in sentiment, since surely November is off the table. Yet the bond vigilantes are taking rates up on presumed volatility in the markets.

The fact that the unemployment rate ticked higher in September and Plenty of institutions including Fed banks and Wall Street financial firms have taken down their projections to 3rd quarter GDP have played into the latest rate rise in the bond pits.

Stocks have their own driver, which is that the globe sees it as a safe haven for returns in a negative interest rate environment. This run up in stock prices have no basis in the economic reality of the globe.

As the most diversive presidential election in modern US history reaches its crescendo, the stakes are ramping up as bond traders legitimately begin restricting the flow of easy credit that has been the mother’s milk of corporate financing of stock buybacks.

As Treasuries rise, corporate debt will begin creeping up as well, thereby turning off the debt spigot.

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