Long Bonds Finish Up Year Still Locked Within a Range

James Barrett General Commentary Leave a Comment

The Bond market has had a very quiet finish for the year. Since 2017 was generally pretty tight with annual high to low the narrowest in years it’s a fitting close. Yields are approximately 2.75 for thirties and 2.40 for tens. Will 2018 break things loose a bit is the big question. Major keys will be how economic activity reacts to the actual tax cuts and of course what happens with inflation . No doubt relatively subdued inflation readings even as the U.S. unemployment situation greatly improved has led to reduced volatility for bond traders. Nothing lasts forever with economics and a lot of well known analysts do expect an up- tick in both inflation readings and volatility but there are a few guessing 2018 will look a lot like 2017. Reasons to expect an uptick are the tax cut hitting a U.S. economy already doing well with a global economy doing quite well . The tax cut should boost growth even higher and will add to the deficit. The treasury is already forecasting it will have to sell an additional 700 billion worth of bonds next year. The biggest news of the past few months in the interest rate sector was the significant flattening trend seen in the yield curve. We are currently hovering near the lowest levels  the curve printed all year. There’s probably not enough room to repeat this performance from here but there are forecasters saying the curve between two’s and ten’s could slightly invert. In other markets the dollar is having a weak closing session finishing off a weak year and helping the gold market easily clear 1300 and close at the highest level since October.

 

 

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