March 29. hope vs reality

-Yields rose yesterday as the Fed auctioned fives and stocks rebounded.  The ten year yield was up 3.6 to 240.7.  Using the new 2 year, 2/10 treasury spread posted a new low of 111.3, and 5/30 is at its low of 105.  It was a classic ‘turnaround Tuesday’.  However, the frothiness of the stock rebound was only faintly echoed by a bounce in yields.  For example, from the post FOMC sell off in stocks from 2388.75 to 2317.75, ESM (as of yesterday) attained the 61.8% retrace of 2362.  However, in TYM the same move was from 122-205 to 124-295 as tens rallied post-FOMC.  A pull back of 38.2 would have been 124-015; yesterday’s low was only 124-085.  In other words, treasuries appear to have underlying support and aren’t as enthusiastic about economic prospects as equities.

–This price action is related to an article citing Morgan St research, which notes a disconnect between “hard data” and “soft data”.  MS notes that the discrepancy between soft data like consumer confidence and hard data like actual sales is quite wide.  This accounts for the vastly different forecasts of the Atlanta Fed and the NY Fed for Q1 growth (1.0% vs 3.0%), as NY includes confidence measures. Fischer touched upon the same subject during his CNBC interview yesterday, and noted that productivity growth has been low and the rate of investment is at a very low level at present.  He characterized risks as balanced.  Another interesting article from GS yesterday said that after the election, the stocks of high tax paying corporations rallied, but have since given back those gains and more, suggesting that tax reform may not be smooth sailing.  The triumph of hope vs reality…  perhaps that is the story of stocks vs bonds, and perhaps it’s also a metaphor for Trump vs Congress.

–There are a few more Fed speakers today.  Chicago’s Evans, Rosengren on the economic outlook at 11:30 EST (he continues to be concerned about commercial RE) and Williams at 1:15, with a speech titled “From sustained recovery to sustainable growth.  What a difference four years makes.”  The mush. There will also be Q&A.  7 year auction today as well.

Posted on March 29, 2017 at 4:53 am by alexmanzara · Permalink
In: Eurodollar Options

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