Good Tuesday AM,
I hope you had a fantastic holiday weekend. Markets are all ugly right now. Nothing but red on the screen (other than Treasury yields, which when are green means rates are moving up, so that’s no fun).
Good commentary I will share from Dan Rawitch and leave it here as he pretty much nails the idea that despite weak economic data, markets are focused on one direction, higher yields and lower equity prices. Now there is speculation that not only will the first Fed rate hike be in March but that it may also be for 50bps vs the previously anticipated 25bps.
It is truly a horrible morning for bonds! It started with overnight markets, which caused a big fat gap down on the MBS charts. We ran below a very key support level and unless bonds start catching a bid where they are now, we could see another 140 bps drop in price on the Mortgage bonds (.375% in rate). Treasuries also jumped a key level of resistance and the yield is not over 1.85% and very likely heading to test 2%. There is some support at the 1.95 level, lets home we can hold there. I drew some trendlines and channels on the treasury chart that you may find helpful. Painful but hopefully helpful. The tone of the market continues to be full of fear and doubt and it may take the FED to step in at some point. It is not likely that he will because he needs/wants this to happen to help ease inflation. This will not ease inflation. It has been tried plenty of times in the past, dating back to the 1930s. Bottom will be found and from there we should see a solid bounce. We need to be careful because the bounce may be temporary. There is a Fed meeting at the end of this month, perhaps one of the more important meetings you have seen for a very long time. I would think during the meeting the FED may be ready to use some calming language. It is my belief that the market has priced in more than enough pain and he does not want to see the pendulum swing too far. When the first rate change does come, you can expect a bond rally. I have seen this more times than I can count. For now, it is likely that we have not bottomed but I am hopeful we are getting close.
I’d believe we are due for a bond rally, it just may take a bit longer to get there.
Please remain safe and healthy.