CNN Business/Paul R. La Monica
Wall Street’s new bogeyman: the bond market

Covid-19 no longer seems to be the biggest concern on Wall Street as more people are getting vaccinated. Now, the focus is squarely on the bond market and inflation.

Investors are starting to worry that the economy may heat up too much, and that inflation will make an unwelcome return.

That has led to some notable volatility in the bond market lately. The US 10-year Treasury yield is now at around 1.44% after briefly spiking to 1.61% on Thursday, the highest level since before the pandemic sent rates plunging last spring. (Stocks surged Monday, though, as bond yields pulled back a bit from last week’s levels.)

While the yield for the 10-year Treasury is still historically low, investors are worried about the magnitude of the spike.

Yields were at about 1% this time a year ago, and they plunged all the way to just above 0.3% in March, shortly after the Federal Reserve cut interest rates in an emergency meeting at the beginning of the Covid-19 crisis.

It’s reminding investors of what came to be known as the taper tantrum of 2013, when bond yields surged after the Federal Reserve announced plans to pull back -— or taper — on bond purchases. A repeat of that scenario could lead to a further pullback in stocks, particularly the Big Tech FAANGs leading the Nasdaq, as they’ve benefited the most from low interest rates.

“The move in rates has been so swift, and that is what has caught the market by surprise,” said David Norris, head of US Credit at TwentyFour Asset Management.

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CNBC/Stephanie Landsman
The value trade is running ‘way too far and way too fast’ for this stage of the reopening, PNC strategist says

The major indexes may be kicking off the month in rally mode, but PNC Financial’s Amanda Agati sees trouble under the hood.

She believes the rotation into economically sensitive market groups from stay-at-home plays is overdone.

“The value side of the equation — that ‘go outside’ trade — has really moved way too far and way too fast for where we are at this stage of the reopening,” the firm’s managing director and chief investment strategist told CNBC’s “Trading Nation” on Monday.

Agati finds the move into value stocks first gained momentum in November due to optimism surrounding the efficacy of Pfizer’s vaccine.

“We’ve seen this massive sentiment shift,” Agati said. “But at the end of the day, we really haven’t seen the underlying fundamentals improve in a big way.”

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Fox Business/Wall Street Journal/Justin Baer, Dawn Lim
Huge losses on derivative trades at Geode Capital Management force hedge-fund business shutdown: WSJ

Huge losses on derivative trades at Geode Capital Management have forced the giant investment firm to close down its hedge-fund business.

Geode manages all of Fidelity Investments’ stock-index funds, and that operation accounts for most of the firm’s $720 billion in assets. But it has also offered an array of riskier, hedge-fund strategies to wealthy clients and institutions.

Geode’s largest private fund lost about $250 million after its bets on stock-market volatility turned sour last year, people familiar with the matter said. The fund was down by some 36% by spring. The losses, and ensuing margin calls, forced the Geode Diversified Fund to liquidate other unrelated positions and led the fund’s biggest investor, Fidelity itself, to withdraw its money, the people said.

Geode closed down the fund and exited from its broader Absolute Return business offering clients hedge-fund-like investments to focus on index investing, some of the people familiar with the matter said. The losses and closure of the hedge-fund business haven’t been reported previously.

The firm recently eliminated several jobs that served that business, the people familiar with the matter said.

Many investment firms are still paying the price of the Covid-19-driven market selloff last year. Geode’s retreat also highlights the continued heightened risks of investing through derivatives, even at otherwise growing firms.

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CNBC/Maggie Fitzgerald
New York attorney general warns cryptocurrency industry: ‘Play by the rules or we will shut you down’

New York Attorney General Letitia James sent a blistering warning to investors and industry members about the dangers of cryptocurrencies on Monday.

“We’re sending a clear message to the entire industry that you either play by the rules or we will shut you down,” she said in a press release.

The warning from James, which addressed individual investors and crypto industry members, comes amid a major start to 2021 for digital assets such as bitcoin.

Monday’s alert comes two weeks after the attorney general filed a lawsuit against Coinseed, a trading platform for digital currency.

James alleged that Coinseed was operating a virtual currency trading business in New York, functioning as an unregistered broker-dealer for more than three years while collecting over $1 million in investors’ assets.

“We will not hesitate to take action against anyone who violates the law,” she said.

“Too often, greedy industry players take unnecessary risks with investors’ money, but, today, we’re leveling the playing field and issuing alerts to both investors and industry members across the nation,” James added.

She also told investors to be cautious about investing in cryptocurrencies.

“All investors should proceed with extreme caution when investing in virtual currencies. Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains,” James said.

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