This episode explores the dramatic volatility in the bond market during April 2025, particularly the events of April 9th. Against the backdrop of this unusual market activity, the hosts interview Ira Jersey, Chief Global Interest Rate Strategist for Bloomberg Intelligence. More significantly, the discussion delves into the potential causes of the selloff, initially focusing on the "basis trade" as a possible culprit, but ultimately concluding that it was likely a combination of factors, including low liquidity during Asian trading hours, dealer balance sheet constraints due to Basel regulations, and a broader shift in investor sentiment driven by uncertainty surrounding the Trump administration's economic policies. For instance, the conversation highlights the role of real money investors, such as pension funds and insurance companies, and their potential shift away from US debt due to policy uncertainty. In contrast to the 2020 market reaction to COVID-19, this episode suggests that the current situation is more akin to the 2008 financial crisis due to the higher level of uncertainty regarding the endgame of the current economic climate. The interview concludes with a discussion of the term premium, its existence, and the challenges in accurately measuring it, emphasizing the importance of considering both technical market factors and broader economic trends when analyzing bond market behavior. What this means for the future of the US Treasury market is a continued period of volatility and uncertainty, with the ultimate demand for US debt remaining unclear.
