Market Overview

Why Is The Bond Market Witnessing A Sell-Off Worldwide?


The bond markets worldwide are seeing huge corrections with yields drifting lower. PIMCO CIO Scott Mather was on CNBC recently to explain what might have triggered this global selloff.

The Narratives

“Surprising as the global sell-off has been, it’s equally surprising to see the narratives out there in the marketplace used to explain it,” Mather said. “I mean many of them are inconsistent with the price action that we've seen. For instance, one idea is that maybe its inflation. People are betting that after all this easy monetary policy, we are beginning to see you know the market has priced in a successful reflation, if you will.”

Not Consistent With Price Action

“And yet when we look at some areas of the bond market, those areas should be doing very well like inflation index, bonds, when you look at even equities, which should do well in that scenario they are having trouble as well. So that’s not very consistent with the price action either.”

Fed Raising Rates

He continued, “Another idea is well maybe it’s because the Fed is closer to moving and while there’s certainly we believe that is true probably this summer and there’s some grains of truth in that, that’s not very satisfying when looking at the nature of the global sell-off because it’s been really led…by foreign bond markets moving in advance to U.S.”

Other Factors

“So, we think it’s more likely that there’s some other factors: supply is one big one that is not talked about very often, but we had a record amount of corporate supply, perhaps $150 billion or so in the last month or so, which is well above expectations.”

“We've also had an unusual month in Europe where we have positive net supply and it will be negative heading into the summer. And then of course this is a week when we see treasury refunding too coming with about $65 billion in securities this week,” Mather concluded.

Posted-In: CNBC PIMCO Scott MatherBonds Markets Media


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