Read the fixed income commentary from Executive Vice President Kevin Giddis.
The Treasury market is trading lower this morning as investors continue to move out of risk-off and into the pool of risk-on. The defensive, must own Treasuries, buying posture of the last few days seems to have vanished in favor of equities. The Fed is not as dovish as the market believed, the economy is on better footing than many expected, and earnings are coming in higher than their forecasts. Yesterday’s 30-year bond auction went pretty well as traders felt comfortable with their levels, the participation, and the amount of bonds that they had to take down. Later this morning we will get the University of Michigan’s Consumer Sentiment Index for April which is expected to come in at 98.2 vs. 98.4 in March. If you are keeping score, the last time this index was above 100 was last September, but it has risen in each of the last three reporting months so I doubt we will find a lot of buyers post this release. So this has been a pretty good week for data, some of it in the numbers, and some of it from the spoken word. The Minutes, the speeches, and the comfort that we aren’t likely on a straight path to a recession has helped to calm investors’ nerves. The Fed Funds futures Probability Index has even backed off its suggestion that the Fed is going to ease in 2019. Nothing better than a 40% chance, with that not likely coming until the last meeting of 2019. Keep in mind that those who are making these statements have been pretty much wrong for the last 18 months, but even Joe Granville was right every once and a while! As we look ahead to the coming week, we are likely to see the same pattern of buying and selling. Bond volatility, who is your friend, and as measured by the MOVE (Merrill Lynch Option Volatility Estimate) Index, saw a near-term peak a couple weeks ago, but has been on the slide ever since. I think it is safe to say that the market is not really concerned about higher than expected growth or runaway inflation, but will likely still keep a toe in the risk-off pool.
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