Thursday, July 3, 2014

Bond Market Correction

With today's blowout nonfarm payrolls number, we are now entering the teeth of a bond market correction.  In the uptrend that we've had in bonds since the start of year, we've gone from 3.03% to 2.40% in 5 months, we should give back a lot of those gains in a panicky selloff this month.  Still a longer term bond bull, but there will be some worry among the bond fund managers with all this hot jobs data, not to mention last month's hot CPI number.

Since bonds bottomed in late May, we've gone up 29 bps from the bottom, to today's high at 2.69% 10 year yield.  Looking ahead to the 10 year and 30 year bond auctions next week, and also inflation data coming out later this month, we could get an eventual push higher to 2.80%.  At that point, we should get an influx of foreign buyers who want the extra yield, compared to their low sovereign yields (Japan, Germany, France).

The stock market is extremely boring here, we are grinding higher, and the excitement is slowly building.  I can't be a buyer here, at these nosebleed levels, but with such a strong uptrend and Fed just sitting on their hands, it is too tough to short.

With this kind of action, the holiday can't come soon enough.  Be back next Monday.

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