Will This Be the Peak of Inflation Today?.Treasuries Hit New High Yields/Reverse
It has been very easy for the shorts to make money in the rates markets... Those shorts in the front end have made a killing... Look at some of the hedge fund returns through the first quarter... But the long end has been trickier as flatteners have seen some very big reversals. Like 2/10, which had gone negative for a brief moment, and are now positive 25... The question is will the recent moves be it?... We do not think so, but there is an opportunity for a rally... Today's inflation number will more than likely be the peak of inflation... But the Fed governors and street strategists can talk all they want, but we thought we saw some light at the end of the tunnel from Waller yesterday...Waller said " the tricky part will be whether the FOMC can continue to raise rates without causing problems in production and employment"... That seems to us that one of the uber hawks has some reservations...
We can go through the numbers, but we will let the experts dissect CPI... As for support. 2.61 2 years... 5 years we have 2.92, but last night's high of 2.84 should be good.. For 10 years 2.83 high is probably better than our 2.875... Long bonds high was 2.85.. We will go with that... So the question is whether there will be something in CPI to cause the market to rally... Either a better number or an exhaustion move...shorts are pretty big and some trades, like some massive futures trades yesterday that were unweighted, lead us to think that the short base is large and thinking 3% + across the curve...
It is hard to find recession or slowdowns in Austin... Everyone here seems to be well employed working for the likes of Amazon, Google, Tesla..etc...but we talked with a close friend that is a banker we used to work with who lives in Nashville... Apparently he talked his wife out of her good job at Vandy to be a real estate agent..She told us for the first time in a long time there were many open houses yesterday. During the past two years that was not the case, first because of COVID and then last year because the market has been so hot there was no reason to do so.,,, this was in response to the skyrocketing mortgage chart we sent yesterday... So in the "real world" it looks like housing is starting to slow down... We think that is starting to worry the Fed... Add the shut downs in China and the fact that Philadelphia just added a mask mandate, and maybe the Fed will not raise the 8-10-12 times that the hawks think.
Yesterday we saw a mega Amazon bond deal... 12.75 billion with over 40 billion of orders.. There were two other deals totaling just under three billion..new issue concessions were inline... Spreads in IG were out marginally, while HY barely set a new high... While things are not great, the new issue bond market is still operating...