This is much deeper than just a credit downgrade

I've argued for a while that trying to figure out and speculate about where long end rate yields could go, one had to expand the analysis past one's expectation for just US growth and inflation and watch other macro factors. If we just looked at growth and inflation, there is a case to be made for lower yields for sure but I was always worried about the impact of the unwind of the greatest financial bubble in the history of bubbles, that being in sovereign bonds that culminated in the negative rate environment we saw where a negative yielding bond became the ultimate hot potato where central banks turned an asset into a liability. Now that we are mostly past NIRP, outside of a few bond securities in Japan, the current concerns are BoJ tightening (one I've pounded the table on as a focus for a while as the last monetary holdout but a massive one and the author of QE and zero rates dating back decades), the ongoing QT elsewhere, US debts and deficits that after 40 yrs of not mattering, might now matter, foreign central banks being net sellers, banks that are trying to shrink duration exposure and that the end result could be a 10 yr yield of 4.5% or more and thus not for good reason. 

Bottom line, this sovereign bond bubble continues to unwind and the problem now is higher rates just exacerbates the sovereign debt rise as interest expense starts to explode higher, everywhere, not just in the US, highlighted by the Fitch downgrade. And, we now have to go over again which banks still have too much duration of securities on their books, though the Fed has provided the Bond Term Lending Program to ease the pain, but that program is not permanent (at least for now). I remain wary of taking duration risks and still much prefer short duration bonds.

The BoJ intervened again as the 10 yr JGB yield got near .66% and closed at .653%, up another 2.5 bps. Maybe they do this in 5 bps increments since .60% was the line they drew earlier this week. The 40 yr JGB yield rose for a 5th straight day and up 21 bps during this time frame. Asian bonds elsewhere all sold off too and they are doing so in Europe and in the US in sympathy.