May investors seem getting a little bit worried about what’s happening in the bond markets overall and of which the German “Bunds” apparently have turned their recent upward trend in values and downward trend in yields.

Maybe it’s good to take notice the German 10-year Bund is now down in price, which means rise in yield, by 1.8 standard deviations since the beginning of the year and is down by 3.5 standard deviations over the past two weeks.

Notwithstanding it was an unusual event it got rather little attention, but now 2 weeks ago, on April 29, the German 5-year Bund auction experienced what’s called a “technical” failure when its 4 billion euros ($4.49 billion) on offer got only 3.65 billion euros of bids.

Was that the “canary in the coalmine” moment that signaled a final bottoming of the extremely low and negative German bond yields, and because of today's inter-relationships with the U.S. 10-year benchmark?

I think it still remains to be seen if that was merely a “blip” or if that was the first sign of the long-awaited turn up in yields of the global benchmark bonds.

In this context, it could be helpful for investors to take notice “liquidity” in U.S. Treasurys is for the moment at a post-crisis low and continuous to fall further, according to Deutsche Bank Research.

Coming back for a moment to the German 30-year Bund and according to JP Morgan, the present bond illiquidity situation is very well demonstrated by the fact in early 2014 one could trade one hundred 30-year Bund futures contracts, representing a value of 10 million euros, without moving markets too much while now trading less than 20 futures contracts, representing a value of “only” 2 million euros, moves the market.

To put it clear and simple, the current rout in bonds is not the last one and we have certainly not experienced the “big” one(s) yet, yes also in plural.

You can be sure, when that finally happens it will cause a lot of damage, especially to those portfolios/investors, big as well as small, that haven’t taken timely precautions.

Also, keep in mind, liquidity/illiquidity is very difficult to predict as well as to measure accurately, but it’s a fact its scarcity becomes evident when crises suddenly develop and running for the exits becomes suddenly overcrowded if not impossible for the very simple reason asset traders/investors who want to offset their holdings don’t find buyers.

There is no doubt, the potential for a sudden freeze across fixed income, currency as well as money markets is waiting to happen, and when that happens, complacency could turn out being extremely expensive.

In the context of all the above, we know a rise of monetary policy rates usually causes a rise in volatility while “circumstances” finally define the amplitude of the related volatility, of which normally depends if there will be liquidity stress or not.

On Tuesday, John Williams, President of the San Francisco Fed gave some interesting remarks: “…we should see above-trend growth for the rest of the year … a new measure of economic activity that may paint a better economic picture than GDP alone, called GDP Plus … grew at an annual rate of 1.7 percent in the first quarter and averaged 3 percent growth over the past four quarters ..."

"From the Fed perspective, we continue to expect a rate hike this fall … We also think that we have seen the low rates of this cycle and do not expect yields to push back to the extreme low levels of the past month … The decision to raise rates is actually three decisions: Not just when, but how quickly and how high. I see a safer course in a gradual increase, and that calls for starting a bit earlier."

No doubt, the first Fed funds rate hike will cause volatility and nobody knows what impact (liquidity) that will have on various markets.

Keep in mind what Naomi Klein said: “The parties with the most gain never show up on the battlefield.”