Game Over for Federal Reserve?

On a day when GameStop is ripping higher on a new short-squeeze, it is fitting that today migth also herald game over for the Federal Reserve.

ZH: Treasury Yields Explode After Catastrophic, Tailing 7Y Auction

Ahead of today's closely watched 7Y treasury auction, where the bulk of the recent Treasury rout has been concentrated as traders hammered the belly of the curve, we said that "If the 7Y tails a lot, watch out below" as that would only add insult to today's furious selloff injury. Well, that's precisely what happened, because with the 7Y pricing at 1.195%, this was a whopping 4.1bps tail to the 1.151% When Issued.

The auction was, in a word, catastrophic.

Starting at the top, the bid to cover tumbled from 2.305 to 2.045, the lowest on record, and far, far below the 2.35 recent average.

But if that was ugly, the internals were even worse, with the Indirects plunging from 64.10% to just 38.06%, the lowest since 2014, as no foreigner suddenly wants to even smell US debt!

The article finishes with:

The Fed better do YCC NOW, or else we are about to find out just how much absolute bullshit MMT really is.

I'm not sure the Fed can do yield curve control. First, YCC targets the short-end, it isn't about buying the whole yield curve. See Bloomberg (archive link): Fed’s Yield-Curve Control Isn’t for Taming Long Bonds

Now, to bring up yield-curve control misunderstands how Fed officials, notably Vice Chair Richard Clarida and Governor Lael Brainard, have said they envision carrying out the policy, which remains deep within the central bank’s toolkit. Simply put, yield-curve control has never been about squashing longer-term yields, like those on 10-year notes or 30-year bonds. Instead, it’s a way to make sure bond traders don’t try to strong-arm the Fed into raising short-term interest rates before it’s ready to do so.

Things could change. The assumption in the article is that long-bonds are fine, but that was a couple weeks ago. Today's 7-year auction caused a breakout in the 10-year yield (above 1.50 percent), that it subsequently lost as stocks plunged on the up move. Before the auction, the 2-year Treasury bond yield spiked 40 percent to a high of 0.194 percent.

It's possible this was a selling-climax in the bond market and a correction in stocks, along with inflation trades such as commodities will begin. If not, I'm not sure if YCC would help the stock or bond market. It might calm the market down for a time, but my sense is many investors would see more intervention as inflationary. That would accelerate a sell-off in long bonds, cause panic buying of gold and commodities, and probably trigger a crash in the stock market because "long duration" tech stocks dominate the market. (DJIA beats SPX which beats COMPQ in this scenario.)

I have barely sold any mining stocks, but I am well hedged with a few tactical puts along with a lot of VIX calls.