Notes and Bonds Resume New Year Recovery

January 9, 2017 3:36AM CST

New Year money flows from allocation models are probably behind the bid in coupons since start of year. Valuations took such a giant shift in post-election trading to close out 2016, that the mix-wealth manager's benchmark required booking some stock profits and buying some beat up fixed income vehicles. This could continue for a while as fed is unlikely to move fast enough to scare bond market at these cheap valuations, and buying pressure in stocks lessens due to expensive valuations relative to pre-election levels. In fact, the equity risk premium between the ten-year treasury and the S&P index is the narrowest in six years. On a micro basis, Friday’s pullback triggered by a healthy wage jump in the non-farm payroll report, which looks like just a small amount of profit taking. Which is understandable after the biggest bounce since July. The fact that we're back up one point today is impressive, but will be more so if the good start sticks through the close. This week will bring a ten-year auction on Wednesday, and a 30-year on Thursday. Friday is the big day for new economic numbers. Producer price index and Retail Sale are at 8:30 a.m CST with Business Inventories and Consumer Confidence at 10:00 a.m CST.

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