Volatile Bond Trading Sees Market Whipsaw, Oil nears $100

During London trading hours bond prices were pushing higher towards resistance at 143 on widening credit spreads between French and German sovereign debt. But, stronger than expected U.S. Retail Sales numbers as well as a positive print from the Empire State Index at 0.6, up from a negative 8.5 in October sparked a quick sell-off in the long bond before the New York exchanges opened. Bond prices quickly shrugged this data off and reversed on further fears of a meltdown of the European debt markets to challenge the overnight high at 142.60.

After the London close, however there was another sharp sell off in Bonds and the price collapsed more than a point in less than two hours to bounce off support at 141.30 to close at 141.68 or a yield of 3.097% essentially unchanged from Monday.

In sharp contract was action of West Texas Intermediate crude which caught a bid on the COMEX open and never looked back hitting an intraday high of $99.84/bbl.

As expected this volatility was mirrored in the U.S. Stock market today as well.  While S&P futures were down all evening long, the good economic reports coupled with money flowing briefly out of bonds led to a flat opening and selling into the London close.  With bonds prices falling rapidly, stocks rallied to close up 0.48% on the S&P 500 at 1257.81 while the Dow Jones Industrial Index closed up just 0.14% at 12096.16.

Gold acted both with and against the bond market, first rallying with bonds then selling off with them.  Gold, however, uncovered buying before Bonds did to close at $1781, up $2.60 or 0.15%.  Price action was muted during the low-volume Globex session.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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