Good Friday AM,
Bonds have been flat most of the week. It has been uneventful and boring. Sometimes boring is good. It gives prices time to quietly build energy. During these periods we often see pocket pivots on the charts, which are hints on the charts, that institutions are quietly accumulating. While this may be happening, keep in mind that there is still a lot of short interest that has been building in Treasuries For now, floating still looks ok but anything can happen.
Before I expand on the treasury market with a piece from Bloomberg below, I wanted to mention that we now allow for credit card points as an acceptable source of funds for down payment, closing costs and reserves.. this is a big win..
On to the report from Bloomberg on the Treasury Market..
One thing that caught the eye of bond traders this week was Bank of America Corp.’s latest Treasury forecast, which sees benchmark yields sliding below 1% by year-end (I am in this corner), or surging as high as 2%, from a current level of about 1.23%. An incredibly wide range by usual standards. Even so, BofA’s strategists have a point. In the next three months, we will likely get some answers to the big questions. Is inflation really transitory? How is the delta-virus spread really hitting the economic outlook? In this context, how will the Federal Reserve begin scaling back ultra-loose policy?
If these strategists see such a wide range out outcomes, let’s see how that compares to the market. We turn to one of the most complicated corners of the derivatives space, volatility. By taking the price of three-month options, one can determine how much bond yields are implied to move, what’s known in trader parlance as the terminal breakevens.
The bond market implies yields will be roughly between 1.60% to 1.00% in the next three-months, which admittedly looks a bit tame, based on the answers to the questions listed above. So perhaps the good folks at Bank of America are on to something, and maybe market-derived measures of volatility have to shift higher. The punch line… rates are not likely to get worse.
Please remain safe and healthy., enjoy the weekend and first, make today great!