The Bond markets are starting off the week as quiet as the Yankees bats with the market pretty much unchanged from Fridayâ€™s close. As mentioned in prior updates we expect sideways trading between now and 11/2 which is the next NFP day. Then of course we will have the election on 11/6. So before all this I expect a lot of back and forth trading that will result in a relatively tight range.
Right now we are at 1.66% on the 10yr which is close to the middle of the range of 1.60-1.70% Â as reported in one of the trading commentaries that I get from one of our Wall Street trading partners. Mortgages are right in-line. They have had a good streak the last few days as they have outperformed Treasuries. We all read on Wednesday that the MBA Application Survey reported that applications were down so perhaps there is a little supply shortage at this moment. However this is as difficult to predict as ARodâ€™s place in the Yankees batting order. Both story lines are pretty much day to day.
This market is getting very predictable given that we all know what the Fed will be doing for the foreseeable future. After the election we will probably have a few weeks of active trading then we go into the year-end doldrums of December. Believe it or not the end of 2012 is right around the corner. I wonder how many times in December I will get to use one of my least favorite termsâ€¦ Santa Clause Rally. What is interesting to look at is the predictions by the economists at the top 21 Wall Street firms of where the 10yr would be at the end of 2012.
The question was asked in January and what is interesting is that not a single one predicted the yield to be <2.00%. The lowest was 2.0% and the highest was 3.0%. The average was 2.43%. I distinctly remember reading this last January and thinking that I would be real happy with a 2.00%-3.00% range. I thought that range would be great for our business. I find it to be amusing at times how the expectations of low bond yields distorts our perception of what actually is low interest rates. Just think if we traded off and got to a 2.00% 10yr. Wouldnâ€™t it seem like the sky is falling? Food for thought.
The economic calendar is full this week but there are no heavy hitters that I believe will in itself change the tight range of this market. We do have Round 2 of the Presidential Debates on Tuesday night right down the street here at Hofstra (just in case you wonder why the traffic is a little extra heavy on the commute home that night). There is a lot at stake in the debate for both candidates. Obviously Obama needs to show a pulse this time and Romney needs to convince voters that he is not a one-hit wonder. It should make for some good television.