#92: Bonds on the MOVE

I apologise for the late send. I had a busy day and got carried away building of the charts below.

S2N Spotlight

I think the move in the 10-year treasury yield yesterday is not to be treated lightly. I note that it smashed through the 200 and 50-day moving average in 1 trading session.

You can also see there has been an uptick in bond volatility as measured by the MOVE index.

S2N Observations

H/T to Game of Trades. I came across there observation where you shift the Fed Funds rate back by 2 years and then you get a very nicely correlated chart. As you can see where I marked with a red arrow, we know Fed Funds Rate is currently at 5.25% so with this relationship we would expect to see the VIX shoot up. If the VIX goes up then stocks go down.

In this chart I look at the relationship with M2 money supply and the average existing home prices over the last 10 years in the US. Pretty tight relationship.

My mother said she recalls them talking about the deficit when she was a youngster. At 77 years young she still is a youngster and it has been 23 years since the last tiny surplus. This is one thing the government is good at doing, and that is spending more than you earn.

I had a bit of fun with the last visualisation. I plotted the Fed Funds Rate (green) and the Core Inflation Rate (blue). I then plotted the difference. If the Fed rate minus inflation is positive (above 0) that means there is a restrictive monetary policy, and if it is below zero it is accommodative. We are currently in a restrictive policy stance if you believe where inflation is at the moment.

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