The volatility in the bond market is intense. Treasuries have sharply sold off following a strong September jobs report, leading to a quick change in sentiment. The declines since Friday have pushed the yield on the benchmark two- and ten-year Treasury notes above 4% for the first time since August.
Swaps are now pricing a 70% chance the Fed cuts rates by a quarter point at its November meeting. In the last 15 days, the probability of a 50-bps cut in November has gone from to over 60% to zero.
The uncertainty is great, uncertainty fueled by the Fed’s policy of being entirely dependent upon the data—specifically jobs—to formulate monetary policy.
Tomorrow the CPI is released. Will the intense volatility continue?
Most will agree the lack of liquidity—the result of regulatory fiat that has destroyed market stabilizing mechanism—as a primary culprit for this intense volatility.
Many thought the markets would break under such stress. Fortunately, the markets have proven to be more durable than some had previously believed.
Tomorrow is also the commencement of third quarter earnings season. How will the reports be interpreted?
Commenting on yesterday’s market activity, the NASDAQ posted about a 1% advance led by the megacaps. The Dow was flat.
What will happen today
Lasty night the foreign markets were mixed. London was up 0.25%, Paris up 0.27% and Frankfurt up 0.29%. China was down 6.62%, Japan up 0.87% and Hang Seng down 1.38%.
Futures are flat. The 10-year is off 6/32 to yield 4.04%.
Kent Engelke
Chief Economic Strategist Managing Director
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.
