Ahead of "Twist" day, Sep/21 we predicted just the opposite price reaction to that expected - cheaper debt prices and a steeper curve. We were wrong. The curve flattened and prices rose - the Fed’s intent. From a trading standpoint, one could not stay with that position. One can be right at the wrong time. Given reasonable risk control, it had to be taken in.
Now of course, prices are considerably cheaper out to the 10 yr. than pre-"twist" levels (2.14% vs 1.90%) and the curve, steeper than pre-"twist" levels if 2 - 10, yet still flatter if 2 - 30.
"Twist" never had any implications for the economy, only for trading operations. The level of interest rates is not the retardant. Nor is lack of liquidity. There is plenty of that. "Twist" was pure and simple cheerleading.
Over the intermediate term, short of a Merkel / Sarkozy boondoggle, look for higher yields and a steeper curve, especially 2 - 30.
Robert Craven
Now of course, prices are considerably cheaper out to the 10 yr. than pre-"twist" levels (2.14% vs 1.90%) and the curve, steeper than pre-"twist" levels if 2 - 10, yet still flatter if 2 - 30.
"Twist" never had any implications for the economy, only for trading operations. The level of interest rates is not the retardant. Nor is lack of liquidity. There is plenty of that. "Twist" was pure and simple cheerleading.
Over the intermediate term, short of a Merkel / Sarkozy boondoggle, look for higher yields and a steeper curve, especially 2 - 30.
Robert Craven
No comments:
Post a Comment