Guys like me who rely on volatility in U.S. Treasury prices have had a difficult time this past month. What’s usually a roller coaster ride in Treasury prices has been more like a kiddie ride in the amusement park.
This “calmness” in the markets has doused trading opportunities in Treasurys, since trading strategies, like mine, depend on volatility.
It’s not just the Fed lulling the markets into a snooze. Central banks around the entire world have put up all the stops, doing their best to suppress interest rates across the board, inject liquidity to temper price changes, and fuel the bubbles in risk assets.
The result is that over the last month, stocks and bonds have traded in a rather narrow range. The chart below compares the S&P 500 (pink line) to the 30-Year Treasury bonds (blue line). As you can see, both have traded in a narrow range without making any major moves.
Investors are either simply not aware of the risks inherent in the market, or they’ve just stopped caring. It seems that complacency has taken over.
Heck, we’ve only seen a couple corrections in stocks that exceeded 10% since 2009, but they were quickly reversed by Fed intervention. That only helps to drive complacency further.
The important thing to take away from this is that it’s the Fed and other central banks that are fueling risks assets and creating the bubbles investors think can’t pop. That’s never a good sign.
When the markets resume their natural course, that could leave us in store for an unsettling correction. Right now may just be the calm before the storm.
I’ll be keeping a close eye on the interest rate market, as always. When central banks stop interfering to the extent they have been, expect a healthy dose of volatility to disrupt Treasury prices out of their narrow range. When it does, I’ll send an alert out through Dent Digest Trader, and we’ll pick up some nice profits accordingly.