The equity market churn with a volatility that’s almost nonexistent is creating huge moves in the bond pits.
As stocks move in a range for the last week or so and the VIX moving toward single digits, the 10-year note is trading at 2.3%.
This is about where it was right after the election when rates jumped from 1.7% level on Trump’s win. The Brexit trigger had plenty of new money coming in this week looking for safe haven until some of the details and ramifications shake out.
Look out on the medium term, there does not appear to be anything to change the fundamentals behind this trading philosophy until the end of April when the Fed meets again. Trump legislative agenda will be mired in two steps forward three steps back for most of the Spring moving tax cuts and infrastructure spending into second half of 2017 at the earliest.
So as I wrote earlier this week, I believe the bias is to the downside for stocks, and bonds will trend lower as early unforeseen Brexit fallout manifests itself.