Early yesterday equites surged at the fastest pace since 2022 and bonds fell after Treasury Secretary Bessent fueled hopes of trade deals. Treasuries dropped again in price following the most wildest day since March 2020. Currency fluctuations are the highest in over four years.
Midafternoon, equities reversed all of the gains, with some indices falling over 2% on the headlines that Chinese tariffs were increased to 104%.
Treasuries were equally as volatile with longer dated debt down almost two points. The Two-year Treasury or the instrument most sensitive to monetary policy was also volatile, ultimately closing several basis points lower in yield. The yield curve continued to steepen.
Today there is a ten-year Treasury auction and tomorrow there is a thirty-year auction. What will be demand? Has the price already been discounted as the 30-year yield is about 50 bps higher than a week ago? Yesterday the demand for the three-year Treasury auction was regarded as “soft.”
Equites are/were vastly oversold and even though no trade deals have been announced, there are at least many conversations taking place.
The narrative is beginning to rise about the lack of liquidity, liquidity issues brought about by regulatory fiat that has stripped the markets of market stabilizing counter parties, driven by headline reading algorithmic trading bots.
Electronic trading…aka best execution dogma driven by regulatory fiat…does not offer liquidity defined as the ability to buy or sell a security without moving the price. Many times, electronic firms disappear in times of intense volatility or do not honor stated bids/offers.
It must be noted however, these trading systems have been severely stressed tested, perhaps reducing the odds (and belief) that something “could break” in extreme volatility.
What will happen today?
Last night the foreign markets were down. London was down 3.47%, Paris down 3.86% and Frankfurt down 4.01%. China was up 1.31%, Japan down 3.93% and Hang Seng up 0.68%.
Futures are down about 1.75% as China retaliated by levying tariffs up to 84%. The 10-year is off 20/32 to yield 4.37%.
