The answer if blowing in the wind...

Difficult, difficult times right now - The major surprise being how US interest rates have moved significantly higher, the move last week is equivalent to a 5 std. deviation move, or as a friend of mine put it; It is something which should happen every 7.000 years!

The fixed income market is now probably close to neutral, which means there is not going to be major bounce from short covering, and with 10y yield flirting with 5.23% (high last week) it is either closing the eyes and buy the 10 y- notes or hang in there and see if 5.26-5.27% goes and lead yield even higher.

The "design" of the move in the yield is utmost interesting as;

1. It's not due to a move up in inflation expectatations
2. Its high lights how dependent the US fixed income market are with rest of world.

Inflation expecatations have moved barely 10 bps while US yield is up 50 bps!

The foreign central banks are staying away from the US fixed income market, no they are not net selling, but they are not net buying anymore, which means short-end of curve which have priced in small move by Fed will be stable while long-end should correct higher again... meaning steeper yield curve......

We are presently slightly short US T-bonds as the test continues in week of relatively positive US data; retail sales and CPI....

More tomorrow..

Steen