This holiday-shortened 3.5-day trading week has quickly become a brave new world for bond markets. Actually, it might be better characterized as a return to the same old world that has been in play in some form or another since the financial crisis.
In this world, there's a big-picture fundamental justification for the decades-long bull market in bonds to remain intact. From 2008-2013, it was the US financial crisis and Fed QE response. That overlapped with the European systemic crisis and QE response from 2010-present.
With the European Central Bank set to end QE (probably?) this year and with the Trump administration ostensibly connoting increased growth and inflation prospects, the decades-long bull market in bonds was called into question in a big way in the end of 2016.
The only major counterpoints to that idea were the possibilities that Trump would have a hard time getting his campaign goals/promises to translate into policy, and that Trump's leadership style might create geopolitical risks that ended up helping bonds. Some optimists also figured Trump the financier would speak out (and "act out") in favor of low rates as an economic lubricant.
We're only a few months into the Trump presidency and all those wild cards are effectively in play. On the last topic, Trump didn't necessarily speak out in favor of low rates, but he did say the dollar is too strong yesterday. That's a big deal, because it implies policies (or Fed appointments) that will be bond-friendly (weakening the dollar implies bond-friendly accommodation).
Politicians struggling to get bills passed into law and geopolitical gaffes are nothing new, although the stakes are arguably higher than normal now, given that Trump's legislative capability and diplomatic temperament were hot points for financial markets following the election. But now that we've "gone there," to the place where the US President is taking a short position on the dollar, it's a brave new world--one where it doesn't make a ton of sense for traders to bet against the bond market in much the same way that it didn't make sense for traders to bet ON the bond market in late 2016. At the very least, it will be interesting to see how the next several weeks unfold.
Markets close early today (2pm) in observance of tomorrow's Good Friday holiday (full close tomorrow). There are a few economic reports (Initial Claims and PPI), but traders are really only interested in the "brave new world" highlights (political headlines, geopolitical risk, and more White House trading advice).
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