Brandon Chapman says market vulnerability is the highest he’s seen in a long while. The yen is the reason.
This morning the Treasury bought back only $6 billion in bonds. Expectations sat near $10 billion. Yields broke loose.
The 10 year pushed to a yield of 4.857%. That’s the highest we’ve been all year.
Brandon backed the chart out three years. We’re breaking through and testing the high from October 2023.
A stellar seven year note auction pared some of the losses. Brandon still pulled up the SPX at nine o’clock his time and showed a direct positive correlation with bond prices.
The yen is what makes this bigger than a bond story. It strengthened against the dollar today. It strengthened against the euro and the pound too.
Brandon calls it a bigger move than the one we saw at the end of July. He wants to know whether this is short covering or the start of a full carry trade unwind.
An unwind means US, European, and British assets get sold. That cash converts back to yen to pay off debt. Credit implodes quickly.
We lived through a version of this in 2024. The Fed was angling toward cuts back then, and the S&P barely reacted.
Warsh is angling the other way. The Fed meets next week, the Bank of Japan sets policy at the end of next week, and both look ready to raise.
Brandon isn’t guessing at the outcome. He’s already carrying the hedge.
In today’s video, Brandon walks through the exact structure and the levels he’s watching:
- The Treasury bought back just $6 billion against expectations near $10 billion. Yields broke loose and the 10 year hit 4.857%, testing the October 2023 high.
- Brandon’s atomic hedge sits on 757 puts against $100,000 in S&P 500 equity. He buys puts and sells call verticals, and those call verticals can be bought back for 12 cents to remove any upside drag.
- A move to 756 or 755 lets him roll the puts to a 30 delta for about a $1,000 credit. Each leg lower stacks more credit to deploy on future hedges.
- 760 is the level that matters. Take that out and negative gamma may cause prices to keep falling toward the 5 to 10% correction his earlier signal flagged.
- PPI lands tomorrow and CPI comes Friday, with the Fed and the Bank of Japan both speaking next week. That’s a lot of headline risk stacked into a fragile tape.
Brandon thinks those 757 puts could get touched pretty quickly, maybe even by tomorrow. He’ll cover how to manage the put side and generate credits into a selloff during the main session.
The yen was undervalued, and traders wished for it to strengthen. Now it’s strengthening, and stocks are the ones paying for it.
