FinSer 

 Financial Focus

June 18, 2021 
 

     GOOD MORNING! The markets experienced another volatile day, especially the Treasury market or, at least the intermediate-to-long maturities. Treasury prices were firm coming into the day on foreign buying of the overnight dip on the less dovish FOMC meeting. A disappointing weekly jobless claims report extended the gains on 5-years and out maturities. This had domestic accounts and funds moving into the market to get bonds. The 10-, 20-, and 30-year yields breached some resistance levels and it began a run on stops, closing short positions and triggering a short squeeze. The Fed was coincidently doing a QE asset purchase pass in long bonds. Adding downward pressure on yields was the dollar. It spiked higher on Wednesday on the signal that the Fed moved up the timeline on rate lift-off. Foreigners buying dollars to buy Treasuries extended the gains in the dollar. In turn, the stronger dollar cased significant collateral damage to commodity which, in turn, sent market-based inflation expectations lower which, in turn, underpinned the bid for Treasuries as reflation concerns eased. Eyes glazed over in a feeding frenzy through the afternoon before the dust settled and shorts covered leading to some fading some of the crazy gains. Stocks were off their meds and went bi-polar crazy. The Dow went down, the NASDAQ went up and the S&P mostly stood there, taking it all in.
     The dramatic Treasury yield curve flattening continues this morning with the intermediate-to-long end outperforming. Since May 12th, the yields on the 10-year T-note and 30-year T-bond have declined 20 and 30 basis points, respectively. Demand from several sources- from domestic and foreign funds
(mutual and pension), the Fed, overextended short positions- coupled with a number of commodity future prices looking like they may have peaked as the dollar has strengthened taking some of the steam out of the reflation trade has pushed those yields down. Meanwhile, yields have edged up on market buzz about Fed tapering and maybe lifting rates earlier than previously thought. History shows the curve flattens as it discounts Fed tightening or, in this case, less dovish (attached). Stocks are little changed in early trading and with a blank calendar today may stay that way but volatility isn’t far away.

GENERAL
TODAY             
PREVIOUS        
FED FUNDS
0.0% to 0.25% 0.0% to 0.25%
1 MONTH LIBOR
0.08250% 0.08175%
S & P 500
4221.86 4223.70
GOLD
1793.20 1801.10
YEN
110.10 110.73
EURO
1.1915 1.1929
WEST TEXAS CRUDE
71.04 72.15
T-BILLS
YIELD                
YIELD                 
3 MONTH
0.02 0.03
6 MONTH
0.04 0.04
1 YEAR
0.06 0.06
T-NOTES / BONDS
YIELD                 
YIELD                  
2 YEAR
0.21 0.19
3 YEAR
0.42 0.40
5 YEAR
0.87 0.88
10 YEAR
1.49 1.56
30 YEAR
2.07 2.17
                                                                                                 Data Source: Bloomberg Financial Markets

06182021 

4077.91