Friday, March 09, 2007


Remember that huge repricing of risk? The assumption the Fed's hand was going to be forced by subprime? Today's market movement is tempering a lot of that.

  • Corporate bonds are staging an impressive rally. Most IG names are 8-10 tighter than wides.
  • Curve is re-inverting. Today 2-10's were -8. Got as tight as 0.
  • Funds futures backing off. Now most likely cut isn't until August.

Nothing is transpiring which is causing me to question my forecast I made in January. I made a short-term duration play a couple weeks ago, which worked out nicely, and now I'm backing off. I still think the Fed cuts late in the year once or twice, which will allow the curve to steepen out. I also think there is too much liquidity to allow spreads in general to widen dramatically.

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