Countertrend?
March 19, 2021
–Yields jumped yesterday with tens up 9.6 bps to 1.728% at futures settle. Curve made new highs with 2/10 up 6.6 to 157. Red to gold euro$ pack spread (2nd to 5th year) also rose just over 6 bps to a new high of 172 bps. It has been a dramatic yield increase in the past one and a half months. For example, EDU25 (the second gold) was 9875.5 on February 1, and settled 9794 yesterday, over 80 bps. But it’s still only just over 2%, in a world awash with liquidity where commodity prices have been surging. Philly Fed prices were 75.9, the highest since 1980. The main index was 51.8 from 23.1, the highest since 1973. Even if these numbers are outliers, the trend in other data has been in the same direction.
–At settle, CLK1 was down 4.57 to 60.06, with many pointing to renewed covid lockdowns in Europe as the catalyst for profit taking after a torrid rally from Feb thru mid-March. This rally had corresponded with the rise in yields, so a countertrend rally in US fixed income wouldn’t be surprising.
–BOJ widened the bands for long term yields from 20 bps to 25 bps, and tapered guidance on ETF buys. Kuroda: “…we will ensure any moves won’t diminish the impact our yield curve control policy has in stimulating the economy.” Reassuring.
–Equity option expiration today. Nasdaq featured a 3% dump yesterday, though it’s still above levels from earlier in the month, so the burden of proof still falls on the bears at this point.
