Is the reflation trade over, the result of surprised hawkishness of the Federal Reserve? Many including me are befuddled about market activity. There is a litany of high-profile investors ranging from Stanly Druckenmiller to Howard Marks to Jeffrey Gundlach to Paul Tudor Jones that is questioning the outsized rally in long dated Treasuries, a rally that is tantamount to one that is normally associated with crisis.

The advance is oxymoronic given the current and expected background. All have stated the advance is not supported by basic macroeconomic principles, suggesting there are perhaps other issues at hand that is creating an extremely unbalanced market.

Is this observation correct? Is the current torrent advance in the 30-year the result of short covering in an illiquid market, a market that is awash with cash searching for a home, trading on technical rather than fundamentals?

Nomura Securities stated Friday’s triple witching hour “messed up the information that we are seeing,” stating both equity and Treasury trading was primarily “the result of option expiration rather than a change in business or economic fundamentals.”

What will happen this week? As noted Friday, thus for in 2021 the indices—specifically the NASDAQ– has the greatest correlation to the bond market since 1999. The reason for this close correlation is obvious…NASDAQ valuations have not been this lofty since 2000 and the primary determinate to equity values are interest rates.

The economic calendar is comprised of several housing indicators, the final print for first quarter GDP, a sentiment indicator as well as personal spending and income statistics. How will the data influence the market?

Last night the foreign markets were mixed. London was up 0.12%, Paris up 0.28% and Frankfurt up 0.74%. China was up 0.12%, Japan down 3.29% and Hang Seng down 1.08%.

The Dow should open nominally higher following the worst week since October. The 10-year is off 1/32 to yield 1.44%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.