Guest Post

September 25th, 2015 10:01 am | by John Jansen |

Via my friend and former colleague Steve Liddy:

I must have gotten 10 messages, from various people, wondering what the FED Chair was doing with last night’s speech and how the FED had lost credibility. I’m not here to dissect the speech, but it really does read like most everything she has said for a while…well, that’s if you leave out last Thursday’s very dovish message. So, the market does what it always does, pushes things to an extreme.


Again, we can debate the merits of raising rates vs not raising them. However, the FED is in the business of making sure we don’t have another global crisis. So, if jawboning the market to believe you’re still in control of the situation is necessary, than expect them to do that. Last night’s speech came with nothing on the was a speech…when it’s time to go ‘all in’, they’ve shown what they’re thinking.

Pre-speech, I thought the market had over reached to the high side, especially after taking down supply. Anyone who needed to buy, had their chance. I thought selling USZ5, in the 157-12 area looked good. This morning, we’re close the the various moving averages, so if you’re short, watch and simply use trailing stops. Would it surprise me if we traded down to the 155, Fibo support? No, it wouldn’t because liquidity is thin and dealers don’t step in the way. With what Yellen said, might CFOs be inclined to get some issuance going, and rate lock at these levels? We also have NFP next Friday, and the 10s/30s supply announcement, which generally bring moves to higher yields.

Balance sheet data, released late yesterday, certainly reflected the possibility dealers are long, the back end of the market (2nd highest level in the past 2yrs) as we approach Q3 end, and another FED stress test snap shot, for some. Off the runs have richened over the past month, which might point to retail buying (I couldn’t tell you that), or simply some being able to warehouse positions. So, as we approach 9/30, it will be interesting to see if these off the runs can hold these levels. We are getting LB issuance on 10/8.

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