What’s That Again?

The SP (Dow too) has really showed some back bone during the recent rout in the Nasdaq. Trading the relative performance is very popular in futures circles. This type of "leadership" carries a rolling directional bearishness. Also, the Aussie dollar has put in another solid month after turning up in Feb. The commodity hot potato has lost some breadth even as the currency has gained. ("Stuff" remains popular and should through Summer. pork today)

Then there's the yield curve. Last week at this time, as the belly fell hard, we were regaled with stories of Hawkish Feds and confused bond rates market participants. This week the direction turned back up and the curve continued to shrink. The media narrative switched to just confused rates markets participants. The reality is, as with the equity markets mentioned above, the environment promotes a relative performance approach. The general dynamic of the curve makes shorting difficult - hence the preponderance of futures based tactics. As noted prior to the Fed, longer dated securities are being held by both bulls and bears.

Over my experience I have seen several periods where the directional call on rates has been wrong but the curve positioning has worked out. The reality is moves in the shape of the curve do not tell you much about direction. The ZLB enhances the swings out in the unknown land of the Ultra. Finally, the Fed's push for openness has germinated the unintended consequence of extreme repricing around their statement. FG has morphed small adjustments over time into violent headline risk. We are skeptical of the notion that rates participants are slow or easily duped.

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