Market Snapshot 12.6.22- Bonds Are Flat

Good Tuesday Am,

Bonds are flat and appear to be stabilizing in the expected range, which is 3.50-3.65 for the ten-year.

The Mortgage bonds have failed to break above resistance and seems likely to move sideways. I look for the range to narrow and price to consolidate as it prepares for the next move. I wish I could tell you for sure what the direction of the move will be. If I had to guess, I believe this rally can continue post-consolidation.

Commercial real estate, sigh…

Blackstone last week said it would limit the amount of money investors could withdraw from its $69 billion flagship real-estate fund following a surge in redemption requests. Starwood Capital Group shortly after notified investors that it was also restricting withdrawals in a $14.6 billion fund, according to a person familiar with the matter. If the number of investors asking for their money back keeps growing, it would likely become a problem for the real-estate market.

Good news…

Professional investors overseeing a total of $5 trillion are loading up on bets that a recession can be avoided, according to a study from Goldman Sachs. The positions amount to wagers that the Federal Reserve can tame inflation without creating a recession, often referred to as an economic soft landing. “Current sector tilts are consistent with positioning for a soft landing,” Goldman strategists including David Kostin wrote in a note Friday. Yet the precariousness of such bets was on display in the past few days, when strong data on US labor and services sectors drove speculation, the Fed will have to maintain its aggressive policies, increasing the risks of a policy error.

Completely off real estate and finance: this was an interesting perspective on crypto, let it burn…

It seems likely that the FTX disaster accelerates efforts to do, you know, something on crypto regulation. That’s usually how it is with these things and regulation. That being said there’s a growing argument that the correct regulatory response is for politicians to just do nothing and enforce existing laws. This view was expressed by Columbia Law professor Lev Menand at a recent live podcast recording we did with Josh Younger (which will be out in the forthcoming weeks).

Basically, rather than give crypto legitimacy by regulating it and thus making it more part of the existing financial system, better to just keep it out in the cold, separate from everything else. While huge sums have been lost in FTX, and the general plunge in coins prices, there’s been nothing that’s necessitated bailouts of the rest of the financial system. From a pure financial stability standpoint, that’s not a bad outcome for regulators?

Please remain safe and stay healthy, make today great!