At one point the Dow was down over 100 points yesterday, and we STILL couldn't get a strong bid in the 10-year. As the stock market recovered, the bond market sold off. In fact, it pretty much played out like I said it would in my Tuesday post.
Yesterday's market action has me more convinced that rates are headed higher on the long-end. I'm going to shorten duration modestly and increase my option risk.
I've also added Washington Mutual bonds. I know you housing bears are snickering, but WaMu is much more of a straight retail bank than casual observers realize. Their sub-debt just should not be trading like its Ba-rated. There is obvious headline risk here, and I won't be surprised if they widen more from here, but I really think there is 50bps of tightening possible in this name. There are very few investment grade bonds where that is possible.
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