In terms of hedge funds, one of the guys next to me fills Treasury futures orders for a few of them out in NYC and Greenwich and I actually asked him this morning how many still have flatteners on, his reply was "only a few." As for the primary dealers, I think since the Hurricanes, which was essentially the last huge move in the curve in terms of sharp, dramatic reversals, they have been split. It probably depends on each one's inflation outlook. Some may have put steepeners on as inflation was talked up a couple months ago, only to not get confirmation from the market. Others may have decided the flattener was still good as soon as the Fed stated they didn't believe in yield curve predicatability of recession any longer and inflation was contained. The Fed has sent mixed signals in terms of inflation outlook based on the fact they knew they would raise rates for months on end, and possibly didn't want the curve to invert too soon so periodically released inflation warnings. Either way, with hedge funds essentially near neutral in terms of curve trades, dealers probably trying to flatten, and the biggest bond fund in the world (Pimco) getting out of steepeners, most likely helped contribute to the flattening bid these last few days in thin markets.
Pimco getting out of a few two-year longs today, they sold 20,000 (that's right, a third of the 70,000 that traded, which was heavy volume for twos) two-year futures on the screen. The Pimco machine never sleeps. 2-10's down to a little more than 1 basis point today. Happy Holidays to everyone.
100% up room for DOW. Free $$$ Notice Dow is back to zero for the year. Buy now, markets cannot go down from here: less risky than US t-bills.
So I guess this means they see the housing market coming to a soft landing rather than a "bubble" popping which he eluded to(promoting in the media) back in September....... ---------------------------------------------------- Pimco's Gross: End of bubble is nigh Go short and avoid real estate, equities, corporates By Rex Nutting, MarketWatch Last Update: 7:06 PM ET Sept. 6, 2005 E-mail it | Print | Alert | Reprint | WASHINGTON (MarketWatch) - Investors should prepare themselves now for the end of the U.S. housing bubble by avoiding assets like equities, real estate, corporate debt and junk bonds, said Bill Gross, managing director of Pacific Investment Management Co. In his monthly investment outlook, Gross advised investors to "cut the fat" from their portfolios. Gross, a well-regarded bond bull, said the housing bubble is likely to either stop inflating, deflate or pop within the next few months, leading to a slowdown in economic growth. Read his commentary. Pimco is the largest bond fund manager in the United States, with $493.3 billion in assets under management. If the bubble ends, investors must prepare for the "debt liquidation" that Federal Reserve Chairman Alan Greenspan warned about 10 days ago, Gross wrote. See full story on Greenspan's warning. "That means a focus on high-quality investments with anticipation for an eventual Fed easing at some point in 2006," he said. Gross recommended a "bullish orientation towards the front-end of the curve... coupled with an avoidance of anything that carries those low-risk premiums that Greenspan finally diagnosed." In other words, buy short-term securities that have the most to gain from a reversal in the Fed's policy of measured increases in interest rates. "That is not to say that long government bonds won't go up in price if the 'system' suffers some elimination, slower growth, or to be frank, a recession in 2006," Gross wrote. "It's just to acknowledge that the better duration-weighted paper lies at the front-end of the curve, especially now that it provides similar yields to longer maturities." Gross said he wrote his commentary before Hurricane Katrina hit, suggesting that the storm only "adds to the potential for 'caution.'" --------------------------------------------------- Does anyone have any predictions about what will happen to the curve over the next couple weeks considering the slight inversion took place during a time of such low volume? I do not trade spreads but this has definitely got me hooked.
I think we'll get a better picture of if we get more inversion by Tuesday's Fed Minutes... Last time the mins were released was a market turner, so I think that will dictate what will happen most of the month leading up to the next FOMC meeting... just my two cents... BTW, I"m way overleveraged to the long side right now, you think you're watching the screen closely