Thursday, August 24, 2006

I think Lassie's trying to tell us something!

The price action in the bond market the last 2 days shows that technicals are moving the market, not fundamentals. Yesterday we had a poor housing figure and the bond market sold off. Then around 1:30, it rallied back to flat. I happened to be on a plane coming back from St. Louis, so maybe there was more to it, but looking at the chart it LOOKS like accounts desperate to use any sell off as an entry point.

Then today, we get a pretty strong durables figure (ex. trans), but the market is actually up slightly. Why? It looks to me like cash is flowing into the market, some bears are capitulating a little, and so the bulls have to be proven wrong before the market will move the other way.

So what's the market trying to tell us? The people waiting for 5.25% have given in and aren't waiting any more. If you want to play a short-term retracement back to 4.90%, that's a reasonably play and should be made now. But as a PM, I'm getting neutral on duration and setting up for the great steepening of 2007.

In other news, I found the following blog, indexed, and although it really has little to do with economics, it SOUNDS like economist humor. Anyway, its hilarious. Check it out.