With the upward momentum in bond yields reversing on the heels of yesterday’s strong 30 year bond auction, 10 yr swap spread spreads today are falling to the lowest level of the month as pressure eases up for those wanting to swap floating rate exposure for fixed. MBS are also bouncing for a 2nd day sending the FNMA 30 yr coupon to a one week low. What this action exposes though is the growing underlying divergences/weakness that is developing in the stock market as the fall back in yields and drop in commodity prices are not helping the groups they hurt on the upside, especially 2 that are crucial to a recovery. The housing index is down 3 straight days and is at a two week low and the retail index may also close at a two week low. US centric dependent stocks are challenged while the reflation trade may be due for a breather if the $ keeps its bid as 4% in the 10 yr, FOR NOW, finds buyers. Any pullback though in that trade should be bought.
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