In late November we wrote that what is not on most radar screens, what observers have yet to come to fully appreciate is the corrosive impact of the regulatory cliff birthed by an interventionist and redistributionist administration, and, the desultory impact on CEO attitude, on job creation and on consumer activity. We particularly looked for business investment and consumer spending to disappoint, Q4, Q1. However, real events did not especially cooperate, Q4. Now what?
We continue to expect a dampening impact provided by Washington, meaning US powers-of-resuscitation will be hampered by the uneven playing field just ahead. Thus, early January we recommended that readers look for the opportunity to sell the US term structure (or a related strategy).
We also recommended that readers look to take advantage of any market frenzy following last week’s Payroll release, and if not already short the curve then to look to pricing vulnerability post that release to set that position, or something similar.
Thus, Jan/10 we had the Treasury 5-10 at 110, 2-30, 285. The pricing was 112 and 291 following Payroll (and further encouragement from that day’s Jan ISM Manuf and Michigan sentiment reads, both through consensus) and readers who took our advice would be short from roughly those, if not earlier levels. Last: 113, 293.
We all know risk aversion has receded a tad given recent events offshore. Thus, the reversal of quality flight has worked against us (until the next E-Z bout that is). Still, we think the world market crowd remains “keyed” into the wrong fly. This consideration eclipses all others.
Our “governor” then remains in place; thus, it is not a good idea to look for further FI price weakness just ahead. Look instead for a modest contraction in the term structure from present levels.
Robert Craven
We continue to expect a dampening impact provided by Washington, meaning US powers-of-resuscitation will be hampered by the uneven playing field just ahead. Thus, early January we recommended that readers look for the opportunity to sell the US term structure (or a related strategy).
We also recommended that readers look to take advantage of any market frenzy following last week’s Payroll release, and if not already short the curve then to look to pricing vulnerability post that release to set that position, or something similar.
Thus, Jan/10 we had the Treasury 5-10 at 110, 2-30, 285. The pricing was 112 and 291 following Payroll (and further encouragement from that day’s Jan ISM Manuf and Michigan sentiment reads, both through consensus) and readers who took our advice would be short from roughly those, if not earlier levels. Last: 113, 293.
We all know risk aversion has receded a tad given recent events offshore. Thus, the reversal of quality flight has worked against us (until the next E-Z bout that is). Still, we think the world market crowd remains “keyed” into the wrong fly. This consideration eclipses all others.
Our “governor” then remains in place; thus, it is not a good idea to look for further FI price weakness just ahead. Look instead for a modest contraction in the term structure from present levels.
Robert Craven
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