The Weekly Report


  • It’s hard to imagine what part of the financial markets will look back fondly on this week or February. Without a single significant catalyst, sentiment changes self-generated excessive volatility typically seen along with major developments or surprising twists from central bankers. The volatility threw everyone off stride and left them to wonder what March holds. Next month, after all, looms large on the stimulus and vaccine calendars.
  • The second article features this week’s developments over 7 charts, most focused on the sudden rise of 5-yr UST yields in fast moving curve trades that reversed much of the heavy positions in place at the start of the week.
  • The cover discusses January’s core inflation number relative to the cumulative shortfall over the last three years. More important to bond strategy, though, is understanding the anticipation of a secular bull market in inflation. In the last five months inflation expectations no longer track global thinking on economic or cyclical factors. Instead, inflation has hooked up with the bull market in stocks to the point they two are virtually inseparable. It’s a new phenomenon that requires this week’s exploration.
  • The closing hours of the week are bringing fresh volatility to intra-day yield moves. Current bids = 10s at 1.448%, well off the day’s highs above 1.5%, 5s at .757%, and 30s at 2.191% or 20bp below the fast but short spike Thursday afternoon.

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