- Bonds bumped higher in yield by Brexit polls overnight
- Brexit vote is ongoing and results won't be final until early tomorrow morning
- No impact from economic data today
- Neither side of the Brexit trade is fully priced-in, leaving plenty of room for volatility tomorrow
I don't usually have high-conviction feelings about what markets will do in the future. When I do, it is almost always in the form of expecting volatility. That's how I feel about tomorrow morning's opening levels in bond markets. It's one of the few times I think it's fairly safe to say that we'll see a relatively big move in a logical direction.
What is relatively big? Something on the order of 8-10 bps in 10yr yields. It could be a little higher or lower, but my sense is that the Brexit result implies a move toward established range boundaries. 1.80-1.84% has a lot of history as a pivot point for 10yr yields, and just last week we closed at 1.61%. So with current yields around 1.74%, 10bps doesn't seem like an insanely big move. It might even be a logical move.
The only caveat to all of the above is that markets have a tendency to move a little bit less than you think they might in cases like this. It usually ends up being the "surprises" that cause the bigger pops, but if I had to pick a short list of probably exceptions to that general rule, the Brexit reaction would be on it.
102-21 : -0-04
1.7440 : +0.0570
|Pricing as of 6/23/16 3:56PMEST|