Major Moves I've been talking a lot about the 10-year Treasury yield (TNX) during the past few weeks because it has been experiencing a rather dramatic decline, falling to levels not seen since December 2017. One of the reasons I reference the TNX so frequently is it is tied to a variety of assets, indexes and indicators in the financial markets, including the 30-year fixed-rate mortgage . The 30-year fixed-rate mortgage is the most popular mortgage among individual home buyers. According to Freddie Mac, approximately 90% of home buyers choose a 30-year mortgage when financing their homes. So what's the connection between the TNX and the rate on a 30-year mortgage? These two rates have a positive correlation. When the TNX moves higher, the 30-year mortgage rate tends to move higher. Conversely, when the TNX moves lower, the 30-year mortgage rate tends to move lower. In fact, these two rates move so consistently together that mortgage brokers will often approximate what the … [Read more...] about Will Falling Interest Rates Boost or Spook the Stock Market?
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Share to Twitter Share to Linkedin In the initial phase of my career, I worked as a sell-side corporate bond trader. Trading ultimately proved not to be my true calling, but I generated consistent profits with a simple method: Buy on the bid side, sell on the offered side. Under the tutelage of experienced traders, I learned to spot market imperfections that sometimes enabled me to improve on the basic formula by buying below the bid side or selling above the offered side. There were other voices, though, lecturing me on the vital necessity of “having conviction.” Translation: You are morally obligated to decide which way the market is heading in the short run and load up your inventory accordingly, i.e., with either long or short positions. The individuals most insistent on this point were a few interdealer brokers. These intermediaries, most of whom were on a spectrum from harmless to genuinely helpful, earned one-eighth-of-a-point commissions by … [Read more...] about Conviction Is The Enemy Of Performance
Share to Twitter Share to Linkedin An important cryptocurrency collapsed last week and the fallout is having far-reaching effects on stocks, bonds and other risk assets. Unfortunately, this is only getting started. Terra Luna LUNA , the digital coin in the Terra ecosystem, crashed last week to near zero, a stunning fall from $67.64 a week ago. Luna was supposed to underpin UST UST , a stablecoin algorithmically pegged at one U.S. dollar. When the UST peg broke, panic ensued. Investors sold risk assets of all stripes. For many investors this contagion effect feels like déjà vu. The Russia and Asia currency crises of the 1990s roiled markets and wiped out fortunes. The news seemed to come out of nowhere then everything suddenly went off the rails as investors learned about exposure at money center banks in the United States and in Europe. A cryptocurrency inspired contagion has the potential to be much worse. Crypto has become a substantial … [Read more...] about Crypto’s LUNA Catastrophe Threatens Conventional Assets