Hi IQBAL,
Interesting post. You suggest that the yield curve is representative of 'deflationary expectations.' Given that to be the case, how do you arrive at the conclusion of 'a due correction in bonds?' Respectfully, if deflationary forces are imminent, then a correction in bonds means higher rates. The two don't mix. Unless you're suggesting that, as the numbers come out, the deflationary expectations are over done.
If the latter is actually the case, then I would expect to see early indicators of that surprise reflected in the market long before such news hits the street. There are generally indications in market behavior that forcast a change in market sentiment well before those fundamentals reach the headlines. Things that are not indicated in the market earlier are things like the President getting sick, or some other immediate and short term news event. But those kinds of events have little, if any, durable effect on market direction and sentiment since suppy and demand factors are generally not impacted.
The bond market has had a good rally over the past several months, but I see no reason yet to sell out long positions. Also, the equities are remarkably boyant and are behaving as if nothing ever happened. New highs seem likely at this point. Today should be another interesting day.
Have a great weekend.
GZ |
