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Bond Market Basics and Panic
- The bond market is as large as the equity market but is often only noticed during panics.
- Investors shift portfolios from equities to bonds during stress because bonds offer fixed, reliable returns.
Breakdown of Bond-Dollar Relationship
- Normally, a market panic shifts money into bonds and strengthens the dollar.
- Last week, bonds fell, yields rose, and the dollar weakened, showing loss of confidence in U.S. assets.
Market Correlations and Panic Cascade
- Investment models are built on correlations like stocks down, bonds up.
- When these correlations fail, panics cascade as leveraged investors face margin calls, risking a collective bank run.