Covering (In) COT Blue

It was late on a Tuesday night, in the middle of last week, Christmas week of all weeks, with most people already checked out. Having finally obtained Congressional support and approval, the $900 billion-plus “stimulus” (read: stipend) was on its way to becoming reality after months of politically-motivated uncertainty. Not one to sit idly by while everyone else had their say, President Trump on that particular evening tweeted a shocking video where he declared the key (for the public) provision in it “a disgrace.”

I’m asking Congress to amend this bill and increase the ridiculously low $600 to $2000 or $4000 per couple.

Threatening veto, the entire bill – including the larger omnibus budget – was thrown into doubt leaving the Treasury days from perhaps shutting down. From a done-deal to complete chaos instantly, what would this have meant for the inflation-is-coming-because-of-fiscal-spending story? The big bond shorts, among others, have been betting heavily on just this very outcome, then, all of a sudden, gamesmanship at the last hour, practically the last minute, throwing a huge and unwelcome wrench into the whole thing.

Treasury bonds and notes sold off anyway first in futures and then heavily into the next morning’s trading session. It’s impossible to tell what moves a market in its daily maneuvering, but this wasn’t exactly the result maybe you’d expect given the setup. More political infighting leading to a possible serious delay wouldn’t seem to be helpful on the inflation side.

Of course, perhaps shorts are just shorting any news no matter what it is. Interestingly enough, yet another (minor) sell-off hit the UST market’s longer ends just this morning – on information that President Trump won’t veto the bill after all. He’s going to sign the thing regardless of his former complaints about it.

Two intraday bouts of selling pressure (above), both on opposite news.

This has been the pattern for some weeks now. Vaccine, elections, whatever; any kind of substantial report has become the catalyst for negative Treasury market action. Interpretation appears to have mattered little or nothing, it’s just straight sell-button activity once anything hits the tape.

But it doesn’t last, at least it hasn’t to this point. These fits have been limited to single sessions and most of the time only discrete parts of them. At most a two-day move before the buyers (sorry Mr. Dimon) reappear and take up whatever’s on offer.

Going back to early November, long end yields in the Treasury market have moved very little overall. Conspicuously little. It had been building up to vaccines (which were always expected) and then dispelling severe election fears before this other round of massive fiscal aid (which was always expected), leaving the yield curve to move steeper drawing mainstream attention to it.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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