Bonds made solid gains again today, both before and after another strong Treasury auction. Fannie 3.5s picked up more than a quarter of a point and 10yr yields hit the lowest levels since Fed day.
Days like today are frustrating because they’re positive and meaningful for the origination community (those not on vacation), but that have little, if any implication beyond the next 22 hours.
The year-end trading environment is like a much more surreal version of the month/quarter-end trading environment. It’s basically a week where a smaller-than-normal number of traders put their cards face up. If someone has big buying/selling needs, you’ll know it. If someone has tactical goals to make a quick buck off new momentum, they can’t hide nearly as well as they otherwise could. If someone attempts to trade economic data, they’re in for a rude awakening as this environment is dominated by necessity-based tradeflows.
In other words, this is end-of-year housekeeping. It’s NOT positioning for 2017 or participation in an active trend. It’s every trader for themselves, getting done what they need to get done, and then getting out. On occasion, the sum of those year-end goals adds up to a shortage of buyers or sellers. In the current case, various year-end buying needs have overwhelmed the heretofore dominant sellers.
While this is quite nice, any associated implications end when the ball drops. 2017 is a new year and if momentum happens to be positive out of the gate, it would be mere coincidence. (I hope it happens, but the past 2 days don’t make it any more likely).