End of Month or Change in Flows?

AI Mistakes

Post holiday trade is seeing some interesting flows, as equities which were bid up throughout the overnight session saw big flow profit taking come 7am pre NY open. We aren’t sure if this is the start of a larger profit taking move but a couple of our signals seem to be signaling immanent danger is ahead. So we know the debt ceiling is one of our keys as outlined in last nights post and it seems we are now just a vote away from getting a deal. With that up, we want to take a peek at the US fixed income markets where we see a couple of interesting things we haven’t seen in a few weeks:

We see that the belly of the US yield curve is leading the way as both the US 5Y and 10Y are down 11.5bp respectively. We are also seeing a clear outperformance of the US 10Y cash relative to the futures, a good sign of some real money buyers, the kind that only come in at extremes. However we are near month end so some of this buying may be due to duration extension needs as well but this is a constructive signal. We are also seeing the shorter durations finally outperforming here steepening against the 30Y:

These are good signs that money is being moved out of equities and into fixed income or at least setting the stage initially for a move that we do think will truly take place once the FRB pauses and finally starts cutting rates, which we believe is sooner rather than later, in fact we will still hold our call that they do NOTHING in June and July.

The mortgage market seems to like the move and is pressing for a sub 7% 30Y Fixed. We follow Lance Lambert on Twitter who is a good source for Mortgage related data: