The Grok AI scenario paints a far more dire, systemic liquidity crisis in the bond market than the initial tariff-driven sell-off. Here’s how this new information alters the analysis and advice: --- Key Adjustments to the Situation Systemic Risk, Not Just Tariffs: The bond market collapse is now driven by leverage-fueled basis trades imploding, not just tariffs. This is a structural liquidity crisis akin to 2008 or March 2020, where forced selling creates a self-reinforcing downward spiral.
Liquidity Drought: The repo market (critical for funding basis trades) freezing up means even "safe" Treasuries are becoming illiquid. Prices could overshoot fundamentals as margin calls force indiscriminate selling. Fed Intervention Uncertainty: Grok hints at potential Fed action (e.g., emergency bond-buying). If the Fed steps in, bonds could rebound sharply. If not, the crisis could metastasize into a global debt panic.
