Notes and Bonds Fail to Bounce

December 27, 2016 6:09AM CST

Long-term interest rates continue to probe higher as post-Christmas trading resumes.  Last week in very light trading volumes, stock indexes pulled back somewhat and bonds couldn’t generate any kind of corresponding bounce. Today as trading resumes, stock indexes are higher led by Nasdaq with bonds heading in the other direction. The WSJ had an article about big bullish bets in the bond etf’s option market, but this hasn’t been able to support any kind of bid this morning. Recent economic numbers add to the pressure. Late last week the strongest GDP rating in two years was released and consumer confidence moved way up in this morning’s report. Higher housing and oil prices, along with optimism about the new administration, should keep the trend for notes and bonds grinding lower. The pain may increase as projections for ten year notes to reach 3 1/2 in 2017 or even higher. The only thing bulls can grasp on to is the fact that prices have moved down so aggressively since July. For bulls, it’s reasonable to think that the market may be oversold, the changes Trump can make will not happen immediately, or that some of the wilder projections about infrastructure spending will get through at all. A trade war with China, another wild card, and Trump’s quick pronouncements about any number of subjects could cause some volatility in the upcoming year. Happy New Year everyone!

Treasury Daily

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