Bond rally nearing an end?

DALLAS, April 16 (Reuters) - Dallas Federal Reserve Bank President Richard Fisher said on Monday the United States faces grave fiscal challenges and unless these are resolved, it will have implications for Fed policy and the dollar.

"Congress holds the power of the purse. But the Fed cannot be an indifferent bystander to the overall thrust of fiscal policy," he said....."Bad fiscal policy creates pressures for bad monetary policy. When fiscal policy gets out of whack, monetary authorities face pressure to monetize the debt, a cardinal sin in my mind," Fisher said.

So I guess the upshot of Fisher's remarks is that in the 'post-Volcker central bank era' we are destined for hell.

Cheers.
 
Yesterday the dealers engineered a good concession for the 5Y auction but then no inspiration for a cover of those shorts after the a good auction results and ahead of the US GDP today.

- Any insights mcurto?
 
Quote from JohnL111:

DALLAS, April 16 (Reuters) - Dallas Federal Reserve Bank President Richard Fisher said on Monday the United States faces grave fiscal challenges and unless these are resolved, it will have implications for Fed policy and the dollar.

"Congress holds the power of the purse. But the Fed cannot be an indifferent bystander to the overall thrust of fiscal policy," he said....."Bad fiscal policy creates pressures for bad monetary policy. When fiscal policy gets out of whack, monetary authorities face pressure to monetize the debt, a cardinal sin in my mind," Fisher said.
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sounds like a CYA statement given that the financial press doesn't like to provide the obvious analysis. It seems rather late in the game to start talking about bad monetary policy
 

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My feeling is that dealers will continue this concession into the Refunding remaining steep the curve. They will use the Refunding in May to get a bit closer to flat and maybe even short some curve or outright long the long end. Several dealers were in selling September vol in the 10yr options today, about 10,000 total, so obviously the trade at face value (barring it is not a hedge for them being long swaption vol waiting for another subprime explosion or Fed repricing) is that we aren't going anywhere for quite some time. For awhile these same guys stuck to buying futures vs. buying puts (long vol trades) at the beginning of the subprime mess and did OK (held em way too long though). In my opinion short puts and short futures (short vol, but not too loaded up) is still a good bias here (put on the Sep 9500 midcurve Euro$ puts vs. 9538 Sep08 over a month ago and is doing well).
 
Quote from mcurto:

My feeling is that dealers will continue this concession into the Refunding remaining steep the curve. They will use the Refunding in May to get a bit closer to flat and maybe even short some curve or outright long the long end. [...]
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I cannot comment on the vol / spreads thoughts but apparently you were right about the long end scenario. Kudos!
:cool:
 
Vol has definitely traded lower in the 10yr with nearly all months hanging around 3.50%, pretty sure this is at or near all-time lows. Don't see a reason that it can't go below 3% at some point in long end vol. As for the curve, a few dealers are a bit surprised that the concession ahead of the Refunding has been in the short end (i.e. flattening the curve). On the other hand as the eases get pushed further out that notion makes sense. Have been watching grain markets a bit more these days as Corn volatility is upwards of 30% in most months, lot more opportunity to make money there.
 
Quote from mcurto:

[...]As for the curve, a few dealers are a bit surprised that the concession ahead of the Refunding has been in the short end (i.e. flattening the curve). [..]
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Here is my banal consideration: if the 3Y was the last auction they needed more concession for that part of the curve...and effectively it was a weak auction ...can't be so simple?
 
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