From time to time we feature a trade to illustrate a market dynamic. On Mar/9 just after NFP (and before the scheduled FOMC on Mar13) we recommended that clients own the US term structure, especially the 5 – 10yr and 2 – 30yr spreads, then 114 and 285 respectively. Last, 117 and 308. Fundamental developments have for some time dictated that the course-of-least resistance for the yield curve be wider; it was the Fed’s acknowledgement of these developments on Mar/13 that persuaded the market crowd to take note. The Fed is their god.
Thus, a handy little lesson: one must understand economics to make macro strategy but this is not all; one cannot think like an economist if one expects to do well. We must integrate both left-brain oriented activity (engineers, cpa’s, st analysts) and right-brain oriented activity (artists, musicians, entrepreneurs) but the right brain must dominate – this is the key to making good strategy.
We are finished with this curve demonstration.
Robert Craven
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