Good Tuesday AM,

Bonds are pulling back further.

As you know, the price moves sideways most of the time. In doing so, it moves from the top to the bottom of the range predictably. We last touched the bottom of the yield and the top of the price. We tested those levels a few times and then failed. The only option this leaves is to run to the other side of the range and test that level. Sort of like a caged animal wanting to escape 😊. It will test both sides of the cage and bang on the bars until it escapes. When it does break free, it runs in the direction of the breakout. We are now testing the low end of the range on price and the highest on yield.

I expect we will remain in this range until we see Fridays PCE numbers.

The Bank of Japan surprised markets last night by allowing their 10-yr sovereign yield to double from .25 to .5%. Yen jumped in value against the dollar. The dollar has lost about 5% today against the yen, which is a monster amount. The surprise decision has the potential to send shockwaves through global financial markets as the BOJ’s steadfast commitment to defending its 10-year yield cap has served as an anchor indirectly helping keep borrowing costs low around the world.  You would think that a weaker dollar is helpful for domestic rates, but that is truer when the US creates the weakness, not when other central banks strengthen their currencies and thrust it upon us. Japanese goods will be more expensive so, if you are in the market, buy what’s in stock now.

I wish there was more to say but for the moment, there isn’t much…

Please remain safe and stay healthy, Happy Holidays and first, make today great!