June 27. Asset allocation trades today
I may be going to hell in a bucket, babe
But at least I’m enjoying the ride, at least I’ll enjoy the ride. The Grateful Dead
–New low 2/10 yesterday to 206 bps, down 2. Ten year yield fell 3.5 to 252.3. An early swoon in stocks was short lived, with some citing asset re-allocation going into the end of the first half. Might be a bit more of that today as stocks have rallied about 5% this quarter. Treasury vol eased on the rally. 30 yr bond vol had been holding in, but fell a couple of tenths yesterday to 7.1. Atm USU straddle from 3’12 to 3’04.
–Japan unemployment at 3.5%. Good, right? But Household Spending fell 8% in May as consumption had been brought forward to avoid the tax increase. Ten year JGB 55 bps. So are higher gasoline prices a “tax” on the US, destined to negatively impact US consumption patterns?
–Just a quick observation about the ten year inflation index note note yield. It began this year at around positive 80 bps and, with the surprising fixed income rally in general, the yield has dropped to a current level of just 23 bps. The five year is around NEGATIVE 50 bps. The five year tip yield hasn’t been positive since 2010. Acceptance of negative real rates just doesn’t seem to represent a robust underlying economy. Or, said another way, even with institutional rate repression, the economy really hasn’t hit escape velocity. Unless of course, we look at the absolute value of Q1 GDP. It moved to the 3% area, significantly accelerating away from zero. “You’re going the wrong way…”
