Leaving Wonderland

Today's report on the Employment situation (and the deep sharp revisions) has renewed the repricing for leaving Wonderland. We cautioned at year end that the duration infatuation was a dangerous attraction. I compared the cornucopia of specious reasons for buying to Jerry Seinfeld's rental car agent: Good at buying the bonds but not very good at holding them.

Since Jan., the EDU16 has declined from 99.85 to 98.50. For the end of 2015, implied 3Mo money has gone from .62 to .86.   We were excited to hear from the Fed that they were not enamored with "meeting counting Fed Fund Futures" opinions and would be rolling out an Overnight Funding Rate that included Eurodollar/Libor transactions. The Greenspan mistake, hiking 25bp a meeting, would not be repeated.

In Treasuries, the complex had the worst week since the Taper Tantrum with barely a tremble. The "holding of the bonds" is getting tougher, however. Hooper tagged the downside in daily 5s and Classics. Interestingly, the 10 year  remains in an old pattern from the 10/15/14 crash up. The first objective down is 124.31. Weekly breakdowns target 145.12, 123.23 and 117.31 in Classics, Dimes and 5s respectively.

Leaving Wonderland will not be easy. No CB has ever pulled it off. The negative yields and monetary monkey business in Europe mean plenty of guests are still drinking tea at the Mad-hatter's Party. But attempt to leave, we must. Today, I heard comments from the peanut gallery that are a necessary prerequisite for trouble: "It's a good thing the Fed is going to start and reverse." Spoiler Alert: Its NOT. Here's something else to think about with the market so focused on Millenials - They've never seen a bond bear.


hat tip: Marcy Playground: Leaving Wonderland ...in a Fit of Rage 2009

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