That’s “tail-devourer” in the reptilian, roundabout, Uroboros sense. Not tail risk or the like. To wit, the chart below, from Deutsche Bank, showing the correlation between US Treasury yields and the S&P 500.
In recent months, the two have been positively correlated – meaning that when equities went up, bond yields tended to also increase (while prices went down). This was widely attributed to risk appetite. When equities fell, investors tended to shift into ‘safer’ assets like Treasuries, driving yields down as well. When equities increased, yields went up and bond prices fell as investors shifted to riskier assets.
In any case, the two have become noticeably negatively correlated in recent days. Equities are going down, but bond yields are going up, and vice versa.
Here’s the DB explanation:
Investors and risky assets have become increasingly concerned that a higher rate environment may jeopardize the economic recovery going forward. Conversely, lower yields are very well received, as they result in lower cost of private credit for households and corporates, and contribute to liquidity creation in the financial system. This regime of negative correlations makes sense in our view and could become more frequent given the growing importance of the level of yields on the economy through the channel of mortgages notably. Interestingly, in this kind of framework, substantial moves in yields tend to be self-defeating. A strong rally tends to increase optimism about the economic recovery, hence favoring a rebound in risky assets, an increase in risk appetite, and ultimately a bond sell-off. A strong sell-off on the other hand can be seen as a risk for the economic recovery, triggering a correction in risky assets and ultimately a return of risk aversion and a bond rally. This regime could thus maintain Treasury yields within a certain range and favor some stability on yield levels.
It’s certainly a very circular explanation of events, but one that seems to make sense in the circumstances.
Related links:
Bond dealers say worst over for Treasuries – Bloomberg
Smoke, mirrors and Treasury sales – FT Alphaville