11-18-2018, 07:36 PM
Interesting and confusing day in bond land. FI CEFs and both IG and junk ETFs moved sharply higher with seeming large institutional CEF buying late in the day. However, Treasury 10s and 30s took a pretty good nosedive just after 1pm when it was revealed that the 30yr auction was a bit of a mess --- barely over 2x coverage and tailed 2bps back of the 12:59 quote. At least today, credit spreads narrowed and leveraged credit products outperformed Treasurys. Why --- what might be going on?
PERHAPS while we were consumed with political theater, some professionals noted that 1) mortgage applications were down AGAIN, clearly suffering from higher mortgage rates, 2) consumer credit for last month was only $11b, well below estimates and half the prior month, and 3) crude oil has just spilled over $10 in recent weeks. Quarterly GDP may have hit a tax-ish high 4.2% in Q2, followed by a still robust 3.5-ish% in Q3, with predictions in the high 2's for this quarter. Great numbers but bad trend --- and ECRI leaders growth smashed down below zero after months of steady decline. Is this the beginning of a narrative change? Will Fed HAVE TO stop hiking earlier than they anticipate? Are CEF portfolio earnings over 8% good enough that the difference between Fed stopping at 2.5% or 3.5% is essentially irrelevant?
Ideas? Changing narrative? Accident? Goofy correlation between equities and bonds just continuing apace? What do you think?
PERHAPS while we were consumed with political theater, some professionals noted that 1) mortgage applications were down AGAIN, clearly suffering from higher mortgage rates, 2) consumer credit for last month was only $11b, well below estimates and half the prior month, and 3) crude oil has just spilled over $10 in recent weeks. Quarterly GDP may have hit a tax-ish high 4.2% in Q2, followed by a still robust 3.5-ish% in Q3, with predictions in the high 2's for this quarter. Great numbers but bad trend --- and ECRI leaders growth smashed down below zero after months of steady decline. Is this the beginning of a narrative change? Will Fed HAVE TO stop hiking earlier than they anticipate? Are CEF portfolio earnings over 8% good enough that the difference between Fed stopping at 2.5% or 3.5% is essentially irrelevant?
Ideas? Changing narrative? Accident? Goofy correlation between equities and bonds just continuing apace? What do you think?