Discussion
The knee-jerk reaction to today’s weakness is going to be to buy the dip since that’s been the high-Sharpe trade for weeks on end now. But I’m waiting and watching. With valuation and positioning this full and UST 30s breaking out, I have a tough time seeing what reverses this weakness in the near-term (until short-term sentiment measures reach oversold levels) outside of a very weak NFP print on Friday. ADP was hot this morning and YoY tax receipts were blazing, so while The Kitty may be right that NFP is cool, the broader weight of the evidence points to an NFP print that’s not cool enough to slowdown the breakout in yields.
(Notice I said nothing about the Fitch downgrade. 1000% irrelevant.)
Exhibits
UST 30s breaking out is a big deal for long duration assets.
Even in the low-vol melt-ups in 2013 and 2017, there were short-term corrections that reset sentiment.
The Kitty believes there’s a chance NFP prints cool on Friday.
But ADP beat expectations this morning, rates continue to be sticky in the face of very weak manufacturing data, and tax receipts are coming in hot.