This is NOT investment advice.
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Trump Coughs Up Negotiating Leverage, Dollar Tanks, Swaps Swiftly Shock Salty Saviors, Bonds Still Rule All - A Fairly Busy Week
Points to Ponder Perhaps:
- USD denominated assets including USD itself all declining in unison more or less, very uncommon
- 2x LT no less auctions went off beautifully (at least on the surface) this week, yet UST got hammered
- inflation data, by and large, suggest moderating inflation not to mention tanking oil, yet LT yields rose sharply
- Trump claims to be putting the screws to all and negotiating tough, but look what happened when Bessent informed him that bond market liquidity can dry up in a heartbeat
- Powell hasn't even flinched yet trying his best to maintain the Fed's ability to deliver power and shock
- Trump exempts all the Nasdaqqy type stuff
Other than that a boring week.
Why?
Liquidity. People win and lose all day long in the bond market. The Bond Market watching liquidity dry up is a whole different issue. This 'basis trade' hedge fund 'crisis' will get most of the headlines along with Trump, but the real issues are loss of confidence and tight liquidity. Those two things could send the 10YR above 600 BPS in a week or so if allowed to unwind unabated.
UST
In late March and early April the narrative evolving was "well if we end up in recession, at least the 10YR Note is heading below 4%" in an almost sleepy and lost in the fog manner. The Net Interest Expense, long term bond math, refi wall, and all the other issues never went away they just slid to the background as Bessent was steering the ship in a new direction. The thing that jumps out the most to me is how fast and by how large of a magnitude the entire bond market can flip on a dime.
My instincts tell me not only are there many other 'basis trade' scenarios at all times "hanging by a thread" due to leverage, I simply do not have any ability to predict or project if/how/when the next one surfaces. The Boston Fed came out and tossed a little dovish tease so the reality is we have to wait and see how markets react this week. I am very open minded to the plausibility of this equity counter-trend move continuing, so let's see how it all fits together. I doubt this is the end of Bond VOL.
Bitcoin 4HR
Everyone is asking if the bottom is in. I do not know. I would say, looking below at this 4HR chart, that this is the most constructive Bitcoin price/volume action since the Bitcoin Lid appeared and we entered into this grinding and grueling correction and consolidation.
Yes, I emphasized that 74K-78K zone and it "looks like" it might end up being significant, but I am in no way married to it. Nimble and flexible on all hedge/trade.
Bitcoin Daily
Get on a higher TF, see the lack of volume so far on this bounce and the MF just starting to tease a bit. Blue Circle - lotta action generally means a lot of volume there in the past and price/volume seems to find a way back there at some point (both directions).
Liquidation Heatmap
Let's try and isolate the "tariff issue" as specific to Bitcoin as possible.
- Japan set a meeting for the 17th. I'd imagine this stuff takes time. We could see some of the 75 or so nations mentioned start to come forward methodically to work things out.
- Bessent already mentioned a very busy April, May, and June even.
- Market already knows about Liberation Day and the possibility of reciprocal tariffs and tariff rates that look "so high" (even though Trump actually went easy on most of them as a starting point).
- There isn't really any type of negative shock effect specific to tariffs to rock the QQQ and by extension BTC. In other words - what "news" on tariffs could come out now that would shock the market beyond what already happened specific to this one issue?
Near Term Forward Spread
2YR
The 2YR yield is slightly above the level from which it launched its most recent front-running attempt of the Fed. Hmmmm. The cause of the Bond VOL explosion, so it seems, was a potential run on the liquidity and stability of the market. If you got long the 2YR and heard of an event that would cause the Fed to step in - you'd be pretty happy. But it went up in yield quite a bit instead.
Risk On/Off and QQQ
Yes, there have been IBD FTDs. Yes, the "follow through" looks very erratic, risky, flimsy, and kinda like garbage and crap overall. Doesn't mean the major indices could not or would not rally all the way back up to mainstream levels like the 200DMA.
We simply do not know and still face substantial headline risk in both directions. But . . . . . . . . we could be in an ugly counter-trend rally that might end up having some teeth. My exposure (still light and nimble on hedge/trade) is reflective of this.
DXY
Market has been dishing out a beating on the dollar lately, but it's still above the levels of 2020/Covid and well above where it was when the Fed kicked off the hiking cycle. If the current administration is in such pursuit of a "weaker dollar", one could imagine their objectives to be below the levels where it was just before 'Biden'.
JPY/JGB
Last weekend we mentioned the crazy action in JGBs (though not surprising as we have been trying to hint more and more at watching Japan) as a signal on even more bond VOL and drama inbound, and sure enough one for the record books. Here's the 10YR now (note where it settled, hmmmm, remember inflation is running 2-4%) and the Yen:
3rd time's a charm? BOJ is really, really, really serious this time about being a Hawk? Could be much more drama ahead.
Glassnode Onchain Capital Flows Reinforces MF
Not exactly the same, but as shown below wonderfully by Glassnode with more great data, the capital flowing across the network can rise and fall dramatically much like the Money Flow one might monitor when looking at the BTC price on exchanges.
We slipped our Bitcoin 91K in there with the key levels provided by Glassnode. We all understand nobody is capable of any type of exact projections. I agree with Glassnode, it needs to get back above certain levels to really kick in more bullish scenarios. We pegged 91K based on a lot of volume work as well, but between this 87K to 93K area some work needs to get done eventually.
Bitcoin and CDS
Greg Foss did some great work on this. Personally - I find this argument both intriguing and compelling, but to me it is a starting point for Bitcoin's value not an endpoint. Nonetheless - check out this prior article here about using CDS to value Bitcoin. At the time Foss stated that BTC was worth $165K at least given prices for 5YR CDS. He takes the 5YR and annualizes it then multiplies it by 20 to get a 20 year outlook on a nation's likelihood of defaulting on sovereign debt.
Foss ran those numbers . . . . . just for America. What about holding immutable CDS on the entire planet? It's a very intriguing thought experiment in my view.
CDS = Credit Default Swap. Think of it as insurance against a nation defaulting on its sovereign debt. If the price of this insurance is rising it means (in part) the market thinks the odds are rising that the nation will default.
CDS pop, pop well before Liberation Day. Hmmmm.
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