Wednesday, June 19, 2013

Middle of the curve explodes

US Treasury notes and bonds sold off hard on the FOMC meeting news today, especially the 5-year, 7-year, and 10-year maturities.

5-year 1.24 +17bps
7-year 1.76 +18bps
10-year 2.33 +13bps

The numbers look much worse compared to be beginning of the month. If this trend continues much longer, it is very bad news for mortgage rates, house prices, mortgage backed securities, and bonds in general. The Fed remains firmly in control of short rates, but things are starting to wobble in the rest of the curve.

Damage was not limited to bonds today. The DOW was down over 200 points, precious metals, and commodities also sold off. It is very unusual for everything to be this correlated, unless everything was pumped up with cheap credit that got margin called home.