Good Monday AM,
Lots of hawkish Fedspeak today on top of the weekend’s surge in oil prices have bonds getting the snot beaten out of them this a.m. Just as bonds were beginning to show a positive setup on the charts, we opened again with yet another gap down in Mortgage Bonds prices. The ten-year is now as high as its been in recent history, now yielding 2.25%. If you want to place blame, it’s about oil prices which surged again over the weekend. High Oil prices will pull inflation up and further out of control. Virtually every product has a transportation cost attached to it and those costs are through the roof. It is not just oil, it’s also shipping cost in general. We are sitting on an important line of trading support for the Mortgage Bonds and it must hold it or we risk another leg down. As for the ten-year, it appears poised to test 2.35% which will test a multi-decade-long downward channel. The surprising part is that even with the surge in the 10-yr yield, the spreads between the 2-yr and the 10-yr continue to flatten. An inverted yield curve is coming. Recession is coming. Later in the year things will be better but for now, be defensive here.
Please remain safe and healthy.