The Treasury market is trading slightly higher this morning as the week is off to a slow start, probably because it was pretty quiet for most of the weekend. Nothing much was said about the trade war, and the President issued only a few tweets about things that might affect the market. So we start the week pretty fresh, likely more dependent on fundamentals than we have in the last few weeks. This week we will get Existing Home Sales, the FOMC Minutes, New Home Sales, Jobless Claims, and Durable Goods Orders. We will also have an early close this Friday to celebrate the Memorial Day Holiday. All markets will observe the close on Monday. The FOMC Minutes on Wednesday could provide the market with some fuel, although I believe that it will merely reinforce the Fed’s desire to remain patient vs. a feeling that the FOMC is about to alter its policy. That would be consistent with what we heard last week, and we will hear this week. Today we will hear from the Vice Chair (Clarida), the President of the New York Fed (Williams), and Chairman Powell. I would be shocked if they variate too much from the current theme of being data dependent, and willing to “wait and see” how things (the U.S. economy) pan out over the next few months. The Fed Funds futures Probability Index is still suggesting that there is almost a 75% chance that the Fed will lower rates in December, which has steadily increased over the last two weeks as the U.S. and China have slugged it out over trade. While potentially inflationary, a prolonged trade war is almost certainly going to make matters worse for global economies, with the U.S. taking its share of blows along the way. It’s not just about trade either. Geopolitical risks have increased, which is why the bid for safer assets remains intact. Maybe that is why we have seen the bond vol edge higher in almost every trading session since May 8th. The MOVE Index in the last eight trading days has surged from 51.24 to almost 57, which is the highest since last March, and indicates that investors appear to be becoming more and more uncertain about the future. Maybe it’s a good time for a holiday!
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