U.S. stocks continued the bounce today, off the lows of a two-day steep sell-off.
And it was led by the cue of a big bounce in Japanese stocks, and stabilization in the yen.
With the relative calm in stocks, U.S. yields bounced aggressively, with the 2-year yield up as much as 37 basis points from the lows of just 24-hours earlier. That represents a reversal of safe haven flows.
So is the storm over? Unlikely.
Yesterday, we talked about the collapse in the Nikkei over a three-day period, which was of a magnitude we've only seen three other times over the past thirty years.
And each of those extreme declines was driven by a major event (the Global Financial Crisis, the Tsunami/Nuclear Meltdown and the Covid lockdown response).
Let's take a look at the magnitude of the move in the U.S. 2-year relative to the past …
As you can see to the far right in the chart above, almost 76 basis points over four days in the 2-year yield is an historically extreme move. And again, in the case of the 2-year there are also major policy actions associated with these types of moves, including an emergency intermeeting rate cut by the Fed back in January of 2008.
With the above in mind, there are few signs of stress in the financial system thus far — but this widening spread between U.S. corporate and U.S. Treasuries yields is one (chart below).