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I just don’t know how the bond problem gets resolved.

When bond vigilantes reject more aggressive spending, they’re effectively telling policymakers that additional borrowing comes with a higher price.

The Treasury and the Federal Reserve can try to intervene, but their options have limits. Efforts to suppress yields or add liquidity can create new inflation concerns, weaken confidence or provoke an even stronger response from the bond market.

So far, those efforts don’t appear to be working particularly well.

The market is already signaling anxiety. The iShares 20+ Year Treasury Bond ETF (TLT) has been seeing heavy put activity — a sign that traders are hedging against further weakness in long-duration bonds and potentially higher yields.

That matters because rising yields increase borrowing costs and raise the discount rate investors use to value future earnings.

The result is a broad market reevaluation, with richly valued growth stocks facing some of the greatest pressure.

The International Picture Makes It Worse

And it’s not just a U.S. problem. Japanese rates have moved above 3% in parts of the market after spending years near zero or even negative territory.

That’s a massive shift in global liquidity conditions. For years, cheap Japanese funding helped support demand for assets around the world.

As Japanese yields rise, capital has more incentive to stay home while leveraged trades built on low-cost funding become less attractive.

That can drain liquidity from global markets and add pressure to high-flying technology stocks, which are especially sensitive to higher rates.

Bottom line: I really do think it’s the bonds. They’re becoming an existential risk to the bull market, and as long as yields don’t come down, it’s going to be tough.

This isn’t the kind of backdrop you trade with quick flips. It changes how you size positions, manage risk and decide whether to lean toward offense or defense.

I’m walking through these macro crosscurrents and what they mean for your trading every day on the show.

To better trading,

Alex Reid
WealthPin

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

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