You lucky dogs, you get to hear from us twice today. The panic trade continues, driving front end yields down 20bps and the T10 down 12bps to 3.67%. Futures put odds of a cut at 60% within a week! Wells came out last night and updated its forecast to call for 1.25% of cuts by year end. If a picture is worth a thousand words, here's 5,000 words worth.
There isn't a lot of technical resistance between current T10 levels and 3.35%. That doesn't mean the T10 will plunge to that level, but it does make it hard for a trader to step in front of this panic trade.
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Source: Bloomberg Finance, LP
The T2 is down 21bps this morning.
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Source: Bloomberg Finance, LP
This helps cap prices. Pricing is all over the map right now, but here's an example:
$25mm 2yr 4.00%
Today: $175k
1 Week ago: $280k
It would be more if not for the offset from surging vol.
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Source: Bloomberg Finance, LP
Financial Conditions are tightening rapidly. Like the unemployment rate, a snapshot here would suggest everything is under control. But it's the pace of change that has markets on edge.
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Source: Bloomberg Finance, LP
The yield curve is nearly uninverted - less than 1bps.
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Source: Bloomberg Finance, LP
As much as I would love to believe in this trade, it feels overdone. Unfortunately, we have a very quiet data week which means markets could continue swinging wildly. We get some ISM Services data at 10am, which normally wouldn't be a market mover but is suddenly very important. A strong number helps put a floor in this rate drop. But if it comes in unexpectedly weak, look out below.
