Week ahead previews are of course a Sunday tradition here at HR, and I’m just going to come right out and say it: our last two week-ahead previews turned out to be extremely prescient.

And it’s a good damn thing, because to the extent the last year’s worth of Sunday evening preview posts have conveyed a dour outlook or else implicitly suggested trouble was brewing, those week ahead previews were, well, not very prescient. So we were due, goddammit.

Our January 28 week ahead outlook post posited a scenario wherein a veritable minefield of risk for bond traders could result in simultaneous selling in bonds and stocks leading to trouble for risk parity and balanced portfolios just one week after Steve Mnuchin rattled the FX market with his weak dollar Davos rhetoric. Here’s that January 28 post:

Fast forward from that post to last Sunday’s week ahead piece and this was our headline:

Needless to say, the week before last was indeed “crazy” and last week was in fact full of “high drama”, with the former characterized by a dramatic drawdown for risk parity and balanced portfolios and the latter defined by the blowup of the short vol. ETPs and two separate days of the Dow falling 1,000 points or more.

Now that the “VIX Minksy moment” has cleared the deck in terms of the rebalance risk posed by short vol. ETPs and now that the model-driven selling is supposedly (more on why we say “supposedly” here) out of the way, market participants will be back to focusing on what caused things to come unglued in the first place: the fear that more evidence of inflation pressures will lead to more selling in bonds, ultimately pushing 10Y yields beyond 3%, a level that more than a few people are watching very closely.

Aside from Monday’s flash crash, there seemed to be little that could stop yields from rising last week as more evidence of fiscal largesse (think: the budget deal) continues to conspire with inflation fears to weigh on bonds.

As we detailed on Saturday night in “Release The Long End!“, the stock selloff may have served to transform the pension rebalance bid for FI into an offer, removing yet another impediment to rising rates.