Mortgage guys shedding long puts from last Friday, they sold about 40,000 between May 107 and April 106 puts yesterday. Japanese still long their puts in 30yr options though, so maybe some more to go yet. As soon as the mortgage guys unloaded their puts yesterday we traded nothing but higher. Some auction setup today early, but again put selling so we stabilize.
So they did pretty good. I'm with the Japanese, think we're going to head down again but at a slower pace: drift lower over time. Neither the 30yr nor the 10yr have hit my intermediate term targets yet. Thanks for the input
When rates go down, bond holders are happy but not necessarily all of them. In the case of mortgage bond holders, decreasing intermediate/long-term rates also means more people refinancing their home; and when they refinance, old bonds are "called" to be replaced by new ones, and that happens at the worst time for mortgage bond holders since they don't get to keep their bonds (that have been called) to benefit from the plus value of increasing bond prices (while rates go down). So mortgage bond holders tend to hedge themselves against that eventuality by buying treasuries. Getting rid of their treasury puts like they just did was probably part of unwinding their hedges, which implies selling treasuries. All that because of inflationary fears. Now Bernanke is itching to say that we have good growth but that inflation is under control in order to keep inflationary EXPECTATIONS under control but it seems to be too early for him to say that. He probably wants to establish a solid reputation first of being very serious about controlling inflation before telling us that everything is cool and that there's nothing to worrry about.
Listening to Poole and Moskow's comments this morning, kind of suggests exactly that. But looking at the reaction in the markets this morning, other than stocks, gold/crude are both getting hammered. Tells me something else. Guess we'll know soon
Ya, anytime I mention mortgage stuff its always hedging side, Bank One hedging convexity risk for Countrywide by buying calls and Bear Stearns hedging extension risk for Wells Fargo by buying puts.
This is interesting. My TA is displaying that we are near a top or have made a top in 2yr rates. And, the 90day is not that far behind, maybe one more pop. The FED may be getting close to ending these regular increases at every meeting. Still see long rates 10yr/30yr heading higher...
^^^ I hope you're right. I started building what I expect will be a large long position in 2 yrs (actually Dec 07 eurodollars) on Tuesday. Poole has been pretty clear in 2 speeches this week that he thinks the economy is roaring ahead. I assume Fed guvs get a 'heads up' before major reports, so I would expect a pretty big number on Friday's empl. report. As is usual, the key will be how the market reacts to the big number.