It's a bull market in yields Doc. I've been looking for the FED to ease at some point, to help stocks. But they just keep on notching up the crank. And, I do not read anything in their words that says otherwise. I've been following TLT (lehman's long term), listed on the NYSE. It has dropped stride for stride with the 30yr. The 30yr is down 8 points: TLT is down 8 points (92 - 84) It was making new lows for the day after the bond market closed. Seems they are selling anything that even looks like a Bond
Excellent remark but in his March 20th speech Bernanke said <i>To the extent that the decline in forward rates can be traced to a decline in the term premium, perhaps for one or more of the reasons I have just suggested, the effect is financially stimulative and argues for greater monetary policy restraint, all else being equal.</i> <b>and</b> <i>However, if the behavior of long-term yields reflects current or prospective economic conditions, the implications for policy may be quite different--indeed, quite the opposite. The simplest case in point is when low or falling long-term yields reflect investor expectations of future economic weakness.</i> Which means that a. If low long-term interest rates reflect a glut of savings that works against monetary tightness, then monetary policy would have to be tighter; <i>but</i> b. If low long-term interest rates reflect anticipation of an economic slowdown, then monetary policy would have to be more accomodative.
Remarks by Governor Mark W. Olson Update on the U.S. economy At the University of Arkansas at Little Rock, Little Rock, Arkansas April 13, 2006 Just read Kohn's speech below
We might have reached a point where bears don't want to sell anymore but bulls don't want to jump in yet.
Now this definitely looks like a third wave: see the gaps Bears are definitely selling! But getting close to a short term top
I also think that the stock market will continue to surprise us with its strength. At the source of what has been bringing bonds down is solid growth and yet the Nasdaq had just caught up with the S&P before stocks corrected, so stocks still have a lot of time left to celebrate.
I would watch out if you are cautiously bullish in the Notes and especially the Bond. Over the past two weeks there have been so many structural bearish positions put on in the options it is out of control. These are very long-term positions being put on, such as out in September options. The craziest positions are in the 30yr options. John Hughes, an old CRT trader now backed by Stafford Insurance, is long 30,000 (as a local) June 106 puts, and attempting to roll them into the September 104 puts (so far has rolled about 15,000, we'll see at what price pit locals let him out of the rest). There is also a Sep 103-104-105 Put fly on in the 30yr of about 15,000 contracts. Don't forget PIMCO selling the Sep 111 calls about 15,000 times so far. And then the 10yr, a 20,000 lot June 102-103-104-105 Put condor. Finally, the mortgage guys (most likely Wells Fargo), trading in and out of the June 105 puts in the 10yr and then in the 30yr the June 103-105 put spread 1x2 and the July 101-104 put spread 1x2, both 10,000 lot plus positions.