Doug Noland: Sovereign Market Dislocation and Derivatives Turmoil

... Brexit could easily have spurred a problematic "risk off." Instead, a globally super-charged sovereign debt dislocation/melt-up has completely overwhelmed the markets. The disappearing supply of sovereigns and resulting evaporation of yields - coupled with the prospect of endless QE - have led to a generalized risk market short-squeeze and unwind of hedges. This worked to solidify the notion that corporates and EM would now provide the primary source of yield for a freakishly yield-desperate world. And with visions of over-abundant liquidity and ultra-low corporate borrowing costs as far as the eye can see -- replete with M&A boom and buybacks forever - it has become possible to overlook a lengthening list of fundamental factors overhanging equities markets.

... Ironically, as the liquidity myth is illuminated in UK real estate funds, a sovereign debt market dislocation ensures "money" floods into potential liquidity traps in risk markets around the world.