Good Monday AM,

I hope you had a terrific and safe weekend. There is not much going on with bonds (mortgages flat, treasuries a bit better). Stocks are being hit harder (along with crypto). Basically I am going to repost a note from Matt Graham this a.m. It really does, at this point, come down to Omicron since Presidents Biden’s spending bill got crushed with one Democrat refusing to vote “yay” and that China reduced its lending rate (will leave you to speculate why… Evergrande). At this time of year, the trading is muted, bond moves/rate improvements will not be reflective of any market betterment as it is seen as questionable at best. The pundits are calling for a correction in stocks, so be careful there. I do believe pricing will improve into the new year but the Fed is currently a fly in the ointment instead of being the ointment.

Despite a bit of 2-way trading, bonds are starting the day in slightly stronger territory. Pandemic concerns remain the most obvious source of inspiration for bond buyers while pandemic hope does the same for sellers. The news cycle since Friday bears this out with a raft of negative covid news pulling yields and stocks lower at first. The legislative stalemate over the Build Back Better bill played a strong supporting role. Pushing back in the other direction was news regarding the efficacy of Moderna’s booster on omicron. All in all, the trading range is fairly narrow.

One can’t help but notice that yields are about as low as they have been for several months. To be sure, given the state of inflation and central bank tightening, yields are already lower than almost any forecast from recent months. That raises the question as to when we might finally see some more meaningful resistance. There is some chatter around the 1.25-1.35 level in 10yr yields. If we’re not able to make additional gains today, we might conclude we’re already seeing early signs of that resistance both at home and abroad.

Whatever we end up seeing this week, much of the market will view it as temporary or subject to review in early January due to the inconsistent volume/liquidity/participation associated with the holiday trading calendar. On that note, bonds close early on Thursday and are completely closed on Friday. Given the past precedent of trading activity on the half-day before 3-day Christmas weekends, this is effectively a 3 day week.

Please remain safe and healthy, enjoy each and every day, Happy Holidays.