Bond Honey Badger Don't Care

So last week Yellen got hawkish and signaled an imminent rate rise, during that Humphrey Hawkins testimony, according to what I see in the news media.  All that has happened since then is the long bond rallying like a screaming meemie.  Basically, bonds are saying to the Fed: "hey raise rates, make my day!"  Gundlach is right, the bond market wants the Fed to raise interest rates to weaken the economy.  This bond market is not scared of the Fed, it is scared of a stronger economy.  And that definitely isn't coming if the Fed goes on an interest rate hiking cycle.

But the bigger factor is oil prices, with oil weak again, inflation expectations are going down and you cannot keep bonds down for long when oil is trading like this.  Forget equities, it was the massive selloff in crude oil that caused the huge run up in bonds in January.

So far we are getting typical market behavior after a V bottom, the initial blast higher for 1 to 2 weeks towards previous highs, then a pause to find excuses to sell, and a settling down of the up move.  We are in the pause to find excuses phase, which usually doesn't last for more than a few days before you get another leg higher.  The excuse this time was disappointing earnings reports from IBM, Apple, and Microsoft.

Pullbacks during this phase of the move are buyable, as fund managers are still feeling the after effects of the fear mongering about Greece and China.  They still need more time to get comfortable and to increase equity positions.  If you see a similar pullback a month from now, I would be careful, because this is an old bull market, which is vulnerable to dumping big out of the blue, like we saw last December.   For now, volatility should remain low, probably till at least middle of August.