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'Tail Risk' Situation Boosts Bonds; Strongest Levels of The Day
Posted to: Micro News
Friday, January 24, 2014 11:01 AM

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In a bell-curve distribution of possible and probable outcomes, there is a good probability that outcomes (in this case, that's a generic term for "events that can affect bond markets") will fall within a certain range of positivity and negativity.   Tail risk is the risk that events fall outside that range of probability.  Such events are less common/less-expected, but have a bigger impact on markets. 

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Right now, bond markets are realizing positive tail risk from a particularly sharp sell-off in global risk assets.  Even if we simply look at S&Ps, the situation is serious.  They're in the midst of their worst 2-day sell-off since the June 19th FOMC Announcement.  Emerging markets are faring even worse.

Treasuries and other safe-haven assets are beneficiaries.  MBS are doing their best to keep pace and today has been better than yesterday in that  regard.  Fannie 4.0s are up 3/8ths of a point now at 104-16 and 10yr yields are down 4.6 bps at 2.73%.  The rally is only really limited by how panicked global risk assets can become. 

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