Transitory: not permanent.
The one constant today seems to be risk being OFF but that has not ALWAYS been a bond market positive.
I had planned to offer another TECHNICAL (ie DARK ARTS) look at what a sell side firm is out with as their Chart Of The Day — 30yy.
But JPOW apparently retired the term TRANSITORY just after this technical update was written and so a few words on transitory from newly minted and STILL KING of bond market strategy (BMOs Ian Lyngen just won best in Institutional Investors poll AGAIN), which is a string of victories which is anything BUT transitory
The Treasury market is selling off; led by the front end of the market following comments from Powell. Specifically, that it is 'time to retire the word transitory'. Needless to say, the curve is flatter as a result with 5s/30s touching 66 bp and 2-year yields up to 50 bp. We've long maintained that the Fed is the ultimate owner of the 'transitory' characterization and the Chair's decision to move beyond that is a decidedly hawkish step.
US rates are struggling with the fact the change has come at the same time the omicron variant is driving a meaningful risk-off sentiment. We're skeptical that Powell's comment implies the December meeting will see an acceleration of tapering given all of the uncertainty linked to the potential for another wave of the pandemic, nonetheless we expect the faster-tapering debate will heat up in the wake of this remark. We remain constructive on 10s and 30s and are unwilling to fade the flattener in this environment.
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* POWELL: TIME TO RETIRE THE WORD TRANSITORY REGARDING INFLATION
* POWELL: `TRANSITORY' MEANS NOT LEAVING PERMANENT MARK ON PRICES
* POWELL: FED'S TEST FOR INFLATION HAS CLEARLY BEEN MET
* POWELL: ALSO THE CASE THAT PRICE INCREASES HAVE SPREAD MORE BROADLY
Back TO 30yy and another sell side firm offering a view of how / why 1.78 - 76% is so important … Interestingly they ALSO wind up thinking about where 30yy are at weeks END (after the benefit of NFP — 750k, anyone?) as opposed to where they are right NOW (although they ARE fairly close TO 1.78 - 76% aren’t they).
Watching a WEEKLY close is FAIR point especially for the longer - term portfolio manager and investor base (as opposed TO Davey Day Trader).
Keeping this in mind, risk being driven FURTHER off as JPOW has apparently retired the term TRANSITORY, one MIGHT expect flows in TO the bond market but at the moment, and to the best of my (currently much more impaired) knowledge, that’s yet to really perk up, fwiw:
US 30 Year Yield: Line in the sand or quicksand?
For pretty much the last 18 months the chart that has been our “guiding light” regarding longer term interest rates has been the 30-year yield.
Throughout this period, it has respected all the big levels and targets
The area above all that has been most pivotal in this time in terms of levels and targets has been this 1.76-1.78% area and that remains the case for us
Feb. 2020, we saw a decisive weekly close below that saw a downside acceleration to 0.70% 2 weeks later.
March 2020 it tried twice to regain this level on a weekly close basis -but failed and fell away again
Nov-Dec 2020 it again tested this area but failed to establish a weekly close above
Jan. 2021, we saw a weekly close above and a renewed topside acceleration towards our 2.40-2.50% targets
July 2021 onwards we have seen numerous tests of this area abut so far have been unable to manage a weekly close below
As we said above is this a “line in the sand” or “quicksand”?
In reality, we could go either way and clearly the recent Covid variant and its likely outcome is a factor here
What is clear to us is that once again this range is very pivotal on a weekly close basis and needs to be watched “like a hawk” (or like a dove)
US 30 Year Yield once again revolving around pivotal levels.
WATCHING. Equities are melting but trying to stabilize. Iif it’s YELLen, you gotta be SELLIN? … It would seem to ME that someone should take the mic away from BOTH JPOW and Yellen before things escalate (more)quickly… you know, get outta hand … FAST …