Markets will close early today (2pm ET for bonds), but most of 2017’s trading needs have long since been handled for most traders. Case in point, the list of corporate bond launches (something that tends to get at least a few new line items every day) has seen absolutely no activity since December 14th. Incidentally, my commentary from Friday the 15th said it was the “last call” for 2017 liquidity. It’s no coincidence that everything since then has looked far more volatile by comparison.
There are very few traders left to trade in this environment. Some account types (like those who hedge the corporate deals that stopped for the year 2 weeks ago) are completely out of the game. Insurance and Pension funds have also made 99.9% of the trades they wanted to make before year-end earlier in the month. Whatever’s left over (speculators, day traders, algorithmic trading programs, and 0.01% of big accounts with latent year-end trading needs) is what will have the honor of moving markets today.
Don’t expect fireworks with respect to the bigger-picture trends. The yield curve has now bounced at post-crisis lows for the 3rd time this month. Bond markets aren’t likely to suddenly think today is the day for a breakout. For that, and for a breakout of the broader trend in 10yr yields and mortgage rates, we continue to wait for the 2nd week in January.