We advised clients Oct/11, with a reminder Oct/13: Today’s auction of the 30yr went well at 3.12%. "It’s the only place to be," say strategists, and, "we know the Fed is a buyer." No matter. Remain long (L - S) the curve.
Past many years, our favorite diagram or photograph of tension in the US real sector has been the term structure. Analysis and subsequent strategy can be very complex, or, in our style, comfortably simple.
Thanks to quality flight triggered by our EU friends, progress has been modest from Oct/11. The 5 - 10yr, Oct/11, +101, last +116. The 2 - 30 yr, Oct/11, +276, last +290. The 2 - 10 spread however has done poorly, Oct/11 at +188, last +184.
Nevertheless, our view is for continued expansion through year end and into Q1. This is due to anchors set earlier for surprising vigor ahead and it is due to the fact that the Fed may be foolish enough to launch a QEIII.
Thus, clients long are to remain long. Those with no position are to consider entry at the earliest opportunity.
Robert Craven
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