Reply #14: Inflation & Supply is the theory.

[Statistical]

T-bond yields are being pushed to ultra lows this means extreme prices (Bonds are priced at inverse of yield).

So 10 year for example has alredy pushed below 2.85%. Say the bubble continues and people flee stocks, corporates, commodities and keep dumping money into T- onds. Eventually 10 year gets below 2% (price is stratospheric).

At that point the bubble is ready and like any bubble it just needs a catalyst.

Inflation could be one such catalyst. With year 10 year <2% the market has price in low/no inflation (or maybe some deflation). Hit a patch of sligthly above normal inflation (sya 3.5% - 4%) and blam prices will tumble and rapidly.

The govt will issue new bonds at say 5% over inflation (due to high supply) so that would be 7.5%-85% on 10 yr. Existing bonds are priced much higher and would fall to match new offerings and anhiliate bond holders in the process.

Short term bonds = not so much risk but the 10yr is the inflection point. It is a relatively long time combined with the shortest bond yielding over 2%.