Market Snapshot December 4, 2018
Good Tuesday AM,
Markets on again, off again. Yesterday stocks screamed higher on hopes of a substantial trade deal between US and China, today still no news and a few inconsistencies are casting doubt on the deal (as well as the note below on an inversion at the lower end of the maturity curve), and stocks are limping lower. Bonds have a mind of their own and continue to advance. Maybe it’s the unclear path for trade, maybe it’s the unclear path for the UK in the EU (an EU court ruled that the UK can cancel its request to leave the EU so the billions of dollars spent, change in Prime Ministers, and associated brain damage was for naught) or maybe the big drop in oil prices, or maybe a combination of all 3. Regardless of the input, the output is the 10-yr is down to 2.94% and is out performing its less important cousin, the mortgage backed security (up 6bps). The good news is we are now in a new/better trading channel, so the thought of floating is on my mind. I know I have mentioned an inverted yield curve potentially being the beacon of an economic slowdown. That inversion is typically defined as a spread between the 2-yr and 10-yr Treasury Notes. Not only has that spread thinned to 12bps today but the 2-yr – 5-yr spread, although less significant, has inverted today. If the Fed raises rates ion Dec 19, the curve will invert. There will be a lot more discussion on this. Markets will be closed tomorrow (although it is a normal business day and the Fed is open) for the national day of mourning over the passing of President George HW Bush. Lock desks will be open and there is a lot of data starting tomorrow through the Friday jobs report. If bonds can make it through this week keeping their recent gains, we could see a nice Christmas present with regard to rates.
Make today great!