Liquidity Continues Flowing Upstream

"It is the self-fulfilling prophecy of the stops," he says. "You sit on a profitable position for a long time, and move up your stops. Then your risk manager suggests you trim the position. The price goes down, and you hit the stop and blow out of the position. A lot of people were long in commodities, and as they trim positions, the price keeps hitting lower points and everyone starts coming out of it at once."

Oil fell another 3.4% Tuesday, which puts the price down 15% since the start of the year. Other commodities fell Tuesday as well, including copper, gold, heating oil and natural gas.

Indeed, OPEC doesn't seem concerned about supply and demand issues; Saudi oil boss Ali Naimi said new OPEC crude output reductions might not be needed. He also recommends investors not panic about the steep decline in prices.

So if oil and falling commodities aren't reflective of a weaker economy, it makes sense that Treasury bond prices plunged, and yields rose over the two weeks prior to Tuesday. Lower oil means lower inflation. Amid signs of a strengthening economy, all that adds up to the Federal Reserve on pause, and that traders unwound the three rate cuts previously priced into Treasury prices.

But the yield curve remains mildly inverted, presumably reflecting ongoing concern about economic weakness. Treasury prices rose while yields fell Tuesday. The 30-year bond rose 9/32 to yield 4.84%, while the 10-year gained 6/32 to yield 4.75%.