In my opening comments this morning I launched into a diatribe which suggested that the preeminent position of the Treasury bond market was about to fade away.
I have spoken with friends and read some emails which I receive from the street and that exercise leads to a different but plausible alternative hypotheses.
To distill there thoughts, it is about a giant systemic margin call and the means to meet the margin call is via sales of liquid assets. So, the wreckage floating in the street results from those sales.
One correspondent noted that the serious damage in the mortgage market resulted from the same phenomenon and stemmed from margin calls at leveraged S and P funds that were forced to raise cash. This particular trader reported that some of those funds were mortgage sellers.
Another portfolio manager made an interesting point about the manner in which large portfolios have chosen to operate recently. He suggests that many funds have moved to private equity funds from public stock. He also notes that many had retreated from individual stocks and bonds for the glitz of hedge fund returns.
The problem there is that the new technique of management parks money in a place from which it is not extracted with ease, speed and dexterity. So the only stuff that is not nailed down and available for sale is Treasury and mortgage paper.
I still think that if we are bursting bubbles, the Treasury bubble is the ultimate bubble. But certainly this other interpretation is a plausible explanation for some of the recent price action.