The FI markets are essentially unchanged from May. The SP future has taken just 3 sessions to retreat to similar values. The Naz, after another attempt to go it alone, is back on the April highs just this week. The sideshow that was/is the Greek debt situation (I can't bring myself to call it a crisis) diverted attention away from what appears to be nothing more than a Summer, easy money shake-n-bake.
The volatility associated with "normalization" should commence soon. We are anxious to see the FI market handling of a well advertised change in the funding rate. It is our opinion that the adjustment will create some interesting technical shifts but ultimately, will not alter the calibration of monetary policy. In fact, we believe policy will be MORE accommodative, for a time, after the move. However, the primary benefit of zirp has been the suppression and compression of spreads. This benefit will be compromised by altering the prevailing funding status quo, no matter the advertised lead time.
The fact remains, the Fed will, by default position of its holdings, be stuck in a quantitative regime for years to come. Raising the FF rate to 35bp does nothing to the Yucca Mountain of IOUs sitting on their account. The problems come from hoards of paltry yielding, above par trading notes on everyone else's. Long time readers know we are very excited to see the Death Star fired with some heft into year end. (Sidebar: we are noticing a smattering of Turn Days positioning already popping up. By October, there should be a stampede.)
Bottom line: I hope you enjoyed the "Summer Stability" because the fun is about to begin.
Disclosure: Still have a pulse - still hate Ts