Global bonds have lost $456.4 billion of value in about three weeks. It sounds exciting, but you’d never know it from looking at trading activity.

Buying and selling on ICAP’s BrokerTec platform was below the annual average in the past month, and Treasury volumes at Wall Street’s biggest bond dealers just had their worst April in six years. Corporate-bond trading at those brokerage firms also slumped 14 percent in April compared with the same month in 2014.

This is the latest evidence that it doesn’t take a whole lot to cause a rout in bonds these days. Record central-bank stimulus has sent investors piling into debt at the same time that dealers pulled back from making markets -- a combination that means a relatively small amount of trading in $41 trillion of notes can result in a monthly loss that’s bigger than Venezuela’s economy.

“The dramatic sell-off in government bond markets last week should be a stark reminder of just how congested a lot of market positioning has become,” Citigroup Inc. strategist Mark Schofield wrote in a report this week. As trades become more crowded, “it becomes increasingly difficult for investors to exit those positions when the time comes to do so.”

That means that it will be increasingly difficult for central banks to start backing away from their unprecedented stimulus efforts as growth takes hold -- no matter how much they may want to -- without causing a massive traffic jam of investors all trying to sell at once.

David Fuller's view

Is this a potentially frightening situation?  I think so.  After a 35-year bull market for US Treasuries (historic & weekly), extended by QE, institutional and private investors are sleepwalking in this market, convinced that they are low risk.  OK, there is effectively no default risk with US Treasuries but the scope for profit erosion is considerable as the economy recovers

Other government bond markets in developed economies, such as German Bunds, show a similar picture.  Note the persistence of the decline from 1.97% at the end of 2013.  This was the biggest decline by far for over a decade and considerably larger in percentage terms.  At 0.631% in mid-April, they obviously did not have much further to go on the downside but there is plenty of medium to longer-term upside scope. 

The basing pattern is V-bottom with right-hand extension (yet to be seen), as taught at The Chart Seminar.  I do not expect to see last month’s low retested during my hopefully long lifetime.  Breakout Bob Dylan’s song: The Times They Are A Changin’, which I recall near the start of my financial career in 1964.