Long Bonds Start Year Off With A Bang

James BarrettGeneral Commentary

2017 saw very tight trading in most of the interest rate complex .The thirty year bond buoyed by curve flattening had a net change of only a little over two points.  In comparison  just today selling has knocked down the price over 1 and 1/2  handles and may turn out to be significant. Growth ideas seem to be back in fashion as post holiday trading resumes for the week. One indication that risk on mentality has the upper hand is the Nasdaq rallying up over 95 points by midday Tuesday. Will 2018 really break things loose in bonds is the big question. Major keys will be how economic activity reacts to the actual tax cuts and of course what happens with inflation. Analysts do expect  an up- tick in both 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 and a global economy doing quite well . Gold market obviously believes that inflation might finally move higher as it has moved up considerably in the last month. However unless the yield curve starts to widen out in a trending fashion the bond market appears to be reserving judgment. Although coupons are getting sold fairly hard on 2018’s first trading day March bonds have not yet broken any major technical support .  The recent  range lows are about a point lower just under 150 1/2 so stay tuned.