Good Tuesday AM,
Bonds are strong this morning with the 10-yr treasury back to 1.24% on mixed news, which leads one to believe that we have to look elsewhere for the reasons why. One culprit could be the big weakness in Chinese equities and a strong bond market response in Europe. Another could be the rising case counts for the Delta strain (the move in case count is pretty well correlated to moves in interest rates, the graph below is great) and still the move is purely technical, as traders begin jockeying for position, ahead of the Fed meeting tomorrow. I think it is likely the first two but as for the last piece about the Fed meeting, remember there has been a solid track record of the market selling off significantly after the Fed speaks. It has come back each time and often gone up once the recovery was complete. We have no way of knowing whether this will happen again but traders deal in probabilities and the probability of a repeat pattern is always the highest. This month is extra dicey because once we get through the Fed tomorrow, we have to deal with a release of the second quarter GDP and once we get through with that, we get the PCE numbers on Friday. For now, I see us staying in a narrow range with the possibility of volatile moves within that range. Be careful floating into the next few days.
Please remain safe and healthy, make today great!