Strange market yesterday. You had financial stocks significantly higher for most of the day, only to finish about 1.5% lower. That beat the market overall, which got crushed in the last two hours of trading when oil mysteriously spiked.
Also strange was movement in CDS. We saw the major bank/broker CDS unchanged on the day, but the IG CDX 6bps wider. I'd say that move in IG is consistent with a 2% decline in stocks, but with zero participation by financials, its weird.
The last strange thing was the lack of response from the Treasury market as stocks fell apart in the afternoon. Here is the intra-day chart.
You see the S&P (red) fall from 1285 around 2PM to 1261 by the end of the day. The 10-year was at 99-6 at 2PM and finished at 99-9. Hardly a flight to quality or any kind of fear trade. I think this illustrates that the long Treasury market is in a bear market due to inflation concern. Hence you see higher oil sap any bid that weak equities might have created. Today's early activity reiterates this view, as in-line non-farm payrolls produces a sell-off in longer bonds. Shorter bonds are flat to slightly higher.
I continue to think this inflation obsession is dumb. If you are one of the few who agrees, play the 2-5 year area of the curve, because no one wants to own 10's. The curve will steepen.