When the Fed tapers, who buys Treasury bonds?

20+ and 7-10 year Treasury bonds look constructive

Look, I don’t know if it is just poetic or there is some degree of shall we say instigation [tin hat alert] going on, but the contrary play in bonds – which I have seen play out in the past as well – would be that the whole world knows that the Fed is tapering this debt garbage with which it inflated the financialized economy and thus, the markets. That should mean yields would rise because the buyer of last resort is selling.

But no… TLT and IEF are bouncing and have the potential to shift to uptrends.

Now, what could scare up a market for this debt paper? Why, there is our new friend Omicron [dons two ply, reinforced tin hat] in the news again and of course, an equity market correction or liquidation to whatever degree could do the trick. Somebody’s got to buy bonds after all if the Fed is reducing its purchases.

If risk were to go off in any sort of big way the knee jerk by market players (and machines) would be into bonds and out of the inflated asset trades. That of course would tie in to the ‘down’ option of the two options noted for the Copper/Gold ratio (CGR) earlier. Interesting stuff. I want to continue to be perched more for an observational view than a committed view, until the situation clears (although some seasonal tax loss bottom feeds are proving pretty challenging in the short-term).

Here is one view of inflation expectations in the face of the all powerful Oz. Oz was pissed in mid-November and it remains to be seen what his mood will be on the FOMC release. But his jawbone has already been tamping inflation expectations downward for a month now.

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