“With the short end anchored by the Fed, we are seeing some curve steepening,” said Donald Ellenberger, who oversees about $6 billion as co-head of government and mortgage-backed securities at Federated Investment Management Co. in Pittsburgh.
Volatility in the Treasury market reached a three-month high this week. Bank of America Merrill Lynch’s MOVE index, measuring price swings based on over-the-counter options maturing in 2 to 30 years, climbed on Sept. 1 to 110.10, the highest level since June 1.
What is he talking about?
Well, if we go back to our dynamic yield curve and watch it for the past few weeks we find it pivoting about the two year term, the whole curve rotating up then down then back up. What does that tell me? We need some market activity at the two year term.
Equilibrium is the condition where the yield terms move with independence. Whenever one can move the curve toward equilibrium, then there is money to be made. The lack of a "shock absorber" at the two year is causes volatility in the long bond by forcing more synchronous movement then we need.
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