Bond Traders on Rocky Path Are About to Be Stuffed With Auctions
volumeless volatility to persist, hand this out to the men in lieu of pay TUESDAY
It is NOW being said that TUESDAY, a winner in the Fed chair sweepstakes is to be announced. From The Hill:
Biden to speak on economy Tuesday, with fed pick imminent
… The White House announced Sunday that the president would "deliver remarks on the economy and lowering prices for the American people" on Tuesday …
As we wait for said winner Tuesday (and the results of 7yr auction @ 1pm, these liquidity events // flash points // are going to be used to prepare for years end as well as whatever may be in store for 2022 (ie RATE HIKES brought forward).
BRAINard (perceived to be MORE dovish)=bear STEEPENER
JPOW (incrementally more hawkish than BRAINard)=bull FLATTENER (see June FOMC meeting and market experience for model?)
I digress.
From Bloomberg,
Bond Traders on Rocky Path Are About to Be Stuffed With Auctions
… Meanwhile, the extraordinary volatility in short-term yields in particular over the past month got a second wind Friday amid the threat of European pandemic lockdowns. The two-year note’s yield at one point sank as much as 5.8 basis points as government bond markets globally priced in the possibility of another economic slowdown that could stave off central bank rate increases. U.S. traders dialed back Fed rate-hike expectations, with lift-off pushed out to September from July next year and two hikes still priced in by the end of 2022
The moves were subsequently unwound after comments from Fed officials Richard Clarida and Christopher Waller around the potential for faster asset-purchase tapering. Still, two-year yields have had nine daily changes exceeding three basis points since Oct. 15, compared with only five this year up to that point. The wild price action unfolded -- pushing the ICE BofA MOVE Index of expected volatility to the highest level since March 2020 -- as consumer price inflation surged to levels that called into question the central bank’s tentative plan to taper its asset purchases through mid-2022 and turn to raising interest rates no sooner than that
Diminished liquidity alongside still heightened volatility and uncertainty around the policy path could certainly impact the reception of upcoming Treasury auctions, even with the market set to absorb less nominal supply following supply cuts, said Credit Suisse strategist Jonathan Cohn. “What will be especially worth watching, outside of how the auctions go, is how the market digests it through the holiday and month-end.”
Since 2012, when the Treasury auction cycle has coincided with Thanksgiving week, a relatively rare occurrence, the seven-year sector averaged about six basis points of cheapening during the first week of December, Cohn said. In the other years, it averaged a 4 basis point rally.
Click HERE or MORE on aforementioned ROCKY PATH and the source of visual just above from Bloomberg last night. John Authers on PEAK LIQUIDITY up next…