All About Rates

The market is now focused mainly on interest rates.  Normally you don't get the bond and stock market to selloff together in this QE world, but it has been common this week.  Even though the economic data hasn't come in strong, you are still getting this massive selling in bonds.  Overnight, you saw a six sigma move, another flash crash in German Bunds, as their 10 year had panic selling down to 0.79%, then V bottoming off that level.  That was the cause of the big drop in ES and Eurostoxx futures during European hours.

Most of the damage has been done, and I see little downside in bonds from these levels, but we should consolidate this move by chopping around for a few days, then we should get bonds to rally again.  Levels I am looking at on the downside for bonds is the 10 year at 2.25% and 2.30%, the 2.30% being the area where we bottomed off of overnight.  On the upside, 2.14% and 2.10%.

The S&P is remarkably resilient despite Europe getting pummelled and China having a big drop earlier this week.  It looks like a teflon S&P again.  Cannot short it, but also don't want to go long it.