Good Tuesday AM on this Christmas Week,
I forgot to mention in yesterday’s piece that it was the winter solstice. Quite literally, the longest day of the year (which while it has passed quickly, still feels like it has taken the most out of us of any year I can remember). The good news is that today and each day forward until the summer solstice, our days will be longer and brighter.
The stimulus bill was approved by Congress last night and signed by the President today. There was enough information about it for the last few weeks that markets didn’t react to it. There was some data out today. Q3 GDP revised estimates came in a little hotter, but it was the consumer confidence number that was dismal and has put a damper on equity markets. Additionally, the lockdown in London is causing some border closings in Europe. France will not allow any travel with Britain. Rumblings of a shortage of food in London coming out, but I am sure there will be a solution to that. Bond markets are up a bit on the day but there is not much left in this year to expect much movement.
Matt Graham had a pretty good post today that I am including below…
With the passage of the stimulus/spending bill last night, the bond market cleared its last major hurdle for the week/month/quarter/year. By the time it happened, markets had plenty of time to prepare. As such, yields managed to remain squarely inside any of the recent ranges and patterns we’ve mentioned. Today’s chart shows the basics.
There’s no guarantee that yields continue tracking these trends as perfectly as they have been. But if they depart, and if that departure is not obviously the result of some new, obvious, unexpected market mover, we may want to think twice about drawing too many conclusions until we see how trading is evolving at the beginning of 2021.
Year-end trading is a lot like month-end trading (read the “month-end” primer here). A certain portion of the trading community is required to hold a certain balance of bonds based on changes in various indices. Other traders will simply be booking profits by closing positions. They won’t have all the information they need until next week, but they could get a jump on those repositioning efforts as early as today and tomorrow. This could give the appearance that “new momentum” has shown up in the bond market, but just as often as not, early January pushes back in the other direction with equal (or greater) strength.
Please remain safe and healthy, make today great!