What Now for Bonds?

France's deficit is heading for 5.4% this year, the government's plan to cut it to 5% is unlikely to survive the National Assembly, and a presidential election lands in April. French yields keep climbing, the two year Bund now yields 175 basis points less than Treasuries, and the VIX hasn't moved. The Nasdaq hit an all time high on Friday. Jonny called the ten year breaking through 4.5% months ago, and it has been a great year for his short. Now he has scaled back. Options protection has become expensive as the MOVE index surges, and with only about five basis points of a hike priced for November fed funds, he is leaving the October Fed meeting alone. Elvis sits down with veteran macro trader Jonny Matthews, 25 years of institutional experience at Brevan Howard and Citigroup, to unpack why the French deficit is dragging Europe's bond markets lower, why Jonny has cut his Treasury short, and why equities still aren't flinching at higher yields. In this episode: France's 5.4% deficit, a reduction plan to 5% that is unlikely to pass, and an April presidential election with Le Pen and Melenchon leading Japanese yields rising fast enough to close the yield pickup that once sent JGB investors into Treasuries and European bonds Two year Bund yields falling 175 basis points below Treasuries as investors rush into the safe haven Why Jonny has scaled back his ten year short, and why a surging MOVE index makes options protection so expensive November fed funds pricing just five basis points of a hike, and why Jonny won't trade the October meeting Q3 S&P 500 earnings growth expected near 30%, and why the VIX has not moved Why hedge funds have a ton of information but not necessarily better information, and how Jonny forms his own views Jonny has spent 25 years trading macro at the highest institutional level. This is not retail speculation or headline chasing. It is rigorous, independent analysis from someone who has sat at the table. New to SuperMacro? Get 30 days of our Daily Note entirely free at www.super-macro.com 0:00 Cold open: are France's presidential candidates really extremists? 0:13 Welcome back, Elvis is fresh from Las Vegas 0:53 The ongoing bond sell-off and the rise in French yields 1:33 France's 5.4% deficit and an April presidential election 2:32 Why yields are rising: inflation, strong growth and second round risk 4:29 Japan's bond market and the vanishing yield pickup 5:14 Is Europe facing the same problem? 6:03 Why Jonny has scaled back his ten year Treasury short 7:55 Why options protection is so expensive: the MOVE index 8:31 Why the VIX hasn't moved 9:40 How Jonny holds up against hedge funds with more information 13:01 Jonny's Fed funds trade, and why he is sitting out October 15:38 Political risk in Europe and fears of a new sovereign debt crisis 16:58 Bunds as a safe haven, the 175 basis point spread and the euro 18:44 Why Jonny runs a low capital trading strategy 20:38 Equities: why stocks are shrugging off higher yields 22:11 How narrow the rally is, and the AI capex risk 23:13 Wrap up and what the Daily Note offers Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.