Tuesday, August 10, 2010

Market Reaction to Fed Announcement

There's no rule that says the markets can't move in a different direction tomorrow, but here's Jonathon Ogden's report on what happened today:
The treasury market took this as a very bullish (for treasuries) statement. They rallied strongly in the face of a stock rally, gold rally, and USD drop. We saw all maturities rally sharply off the announcement, especially the 30yr which got all the way up to 130'23 in the futures (it was 114 back in April). The 5yr lagged early on but took over later in the day. Most of the curve flattened more - depending on the spread you look at - signaling the odds for a double dip are increasing. After the news was digested we was saw a large pull back in the 30yr but continued strength in the 2's 5's and 10's. Most of the curve is flattening while the 10-30 spread continues to move to record wides.  
If Bernanke does indeed manage to get serious money printing out of this move, then long term gold will move higher, the dollar will head down, but bonds will reverse and head lower as the fear of inflation starts to push rates higher.

1 comment:

  1. Johnathan Ogden?!?