Making Sense

“There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.” ~ Howard Marks With Fed Chair's Front and Center focus on evolving outlook of the US employment situation , this week carried extra significance and the Employment data catalyzed the move in Yields. Yields on US2s fell 35 bps (High - Low Range) and on US10s 28 bps (High - Low Range) over the week . On US2s Yields, we closed right at 3.65% and on US10s at 3.71% which is in close proximity to the braking point we mentioned earlier in the backdrop of the larger H&S Formation. We did not get the upticks towards the 4.10% handle we were hoping for. Another Trade I had thought about and did not write was the break below the 3.90% - 4.10% consolidation range but that's because consolidation break outs many times chop you out so better to trade at the top of the consolidatio...

"It is important to be aware of the mood swings of the market, the Pendulum as Howard Mark says. W*-/*-/hen the Pendulum is at the extreme , it is inevitable it will move back towards the mid point sooner or later. The movement towards an extreme itself that supplies the energy for the swing back. Risk management is a challenge purely when one looks at measures of deviation move to the extreme. The timing of the move to the mid point, if captured wrongly, will prompt you to act in ways that will reduce the overall returns. Hence, it is of paramount importance, that we assess if we have reached cycle extremes. This understanding could be built through how leading Houses are updating the view and whether , in price -  support or resistance levels are holding and how price is reacting to news flow. At which point of time, the levels become clearer and risk management can be more tight.   On that note,  Over the week, the front end of the curve rallied and US2s10s bull s...

 There is no such thing as a good or bad idea regardless of price! Goodmorning!! The US equity markets and the USD index were placid. Crude Oil prices moved decisively lower below the $81.60 support to trade a low of $79.13 following less than encouraging China data, API inventories, weak demand outlook by EIA and US2s10s bull flattened. The much awaited Fed Chair Powell's speech focused on the need for greater adaptability in forecasting techniques and refrained from any discussions around Monetary Policy. Today again he will be part of a panel discussion so be tuned to the wires.  US2s +2 bps, 4.94% , High 4.955% - Low 4.91% US10s - 7.50 bps, 4.495%%, High 4.61% - Low 4.49% US2s10s -45 bps (- 10 bps) DXY 105.53 Flat on the day  Fed Fund pricing Peak Terminal Pricing 5.37% Jun 24 Pricing 5.06% ~ market is pricing in one full 25 bps rate cut by mid next year Dec 24 Pricing 4.45% On the India macro front, On Nov 7, liquidity deficit widened to INR 21K crore possible o...

Nasdaq led losses closing 2.47% lower on the day and S&P 500 closed 1.43% lower on the day. Yields on US2s rose 8 bps off lows to days high of 5.13%, the moves on US10s were dramatic , rising as much as 16 bps off lows to trade a high of 4.97%. US2s10s curve steepened with highs seen at -17 bps. On Tuesday, the spread had widened to as much as -30 bps. US Equities and Bonds tanked while Crude Oil, Bitcoin and USD index gained strength. 759,000 New Homes were sold in the US far more than consensus estimates of 680,000. After the strong PMI data release, the new home sales number only supports the Fed's case for higher for longer. Mike Johnson was elected as House speaker and WSJ writes "The quick take on Wall Street seems to be that this makes the possibility of a government shutdown a little less likely". On the implied Fed Fund Pricing, Dec 2024 pricing shifted 5 bps higher to 4.68% while the pricing for peak terminal rates was unchanged at 5.43%. The Geo-political s...