Submitted by Jeffrey Snider – Alhambra Investment Partners
When the FOMC came out and said the economy was good enough for them to begin raising interest rates, the eurodollar funding market did the opposite of what would be expected of that situation. Not only did the market move in the “wrong” direction, it did so with a great deal of conviction.
Today’s jobs report moved the eurodollar market also with conviction, though now back in the other direction from the FOMC. As a result, we have returned to January levels of rate “interpretations”, though still with the requisite flattening in the outer years.
Ultimately, I don’t believe these markets, including treasury rates, are factoring anything different than what they had been doing almost uninterrupted since November 20, 2013. Rather, I think given all the dramatic bearishness imbedded within these levels, especially since December 1, a retracement was long overdue. The 10-year CMT rate fell from 2.27% back on Christmas Eve all the way to 1.68% a few days ago almost without pause; the 30-year went from 2.85% to 2.29%.