The pivot to Value stocks and Bonds in August should have been expected.
How can EU institutional investors chase negative yields when US Treasuries are paying up to 2% more?
So, it looks like much of Augusts’ deep inversion could have been more to do with safe haven and the escape from negative returns!
Anyway, the value stock and bond rotation has put extra strain on dollar funding in the system. There is a massive shortage of USD and the REPO rate hitting 10% shows that some overnight borrowers will pay a high premium for funding and/or else there is a major problem with an ‘Institution’ – bn of overnight funding is not a small amount of funding.
The cracks in the Bond market could be widening. Prepare for a possible exit panic!
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