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Price discovery

US treasury yields keep going up. There is an imbalance between supply, where the Treasury needs to issue long term debt to cover the deficit, and demand, where the usual suspects (Fed, Banks, China and Japan) are shying away from them for the foreseeable future. The bond market is now on a price discovery process, and at this point is not finding enough buyers to compensate for the amount of paper that will be sold. This scenario is one of the consequences of rising rates too fast, too high. Banks, natural buyers of treasuries, are completely out of balance, hiding bond losses under the held-to-maturity rug, and together with the Fed have uncovered an air pocket difficult to fill. The questions now is: will the Fed acknowledge this situation is not sustainable and act? If so, does it mean #ratehikes are no longer in the books? How long until the market starts pricing #ratecuts? How much does the equity market need to correct for the Fed to do something?


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