With 10yr yields less than half a bp lower and Fannie 3.5s and 3.0s a mere 1 tick lower, we’re effectively unchanged to end the day. That’s a victory after the volatility and weakness earlier in the session, but again, the rally was hungry for a constant supply of external motivation.
That motivation came from several places today. Chief among them were the afternoon’s strong 30yr bond auction and big stock sell-off (which, itself, is ostensibly tied to an overly-aggressive slide in oil prices). Don’t ask me to make sense of this. Just this morning, lower gas prices were widely credited for the strong Retail Sales numbers, and of course the balance of talking heads characterize it as an economic boon.
OK, I guess I’ll try to explain it anyway. Or at least, I’ll offer the most mainstream explanation which is that any strength from increased spending power associated with lower gas prices is being offset by weakness among energy companies and the price of protecting against the global market volatility created by such a rapid movement. I actually agree with this. It’s never good when something as integral as oil moves so far, so fast. It’s just that markets haven’t come to an agreement on exactly why that is yet, apart from conjecture and the “mainstream” talking points mentioned here.
Bottom line though, if it hurt stocks today, it seemed to help us, though I’d caution that there’s far from a direct relationship between oil prices and bond yields. The line under the bottom line is this: it continues to take a lot of fuel to sustain our rally (no pun intended, seriously). That leaves us to wonder where bonds will go when other global markets have a decent day.