Home on the Range
One of the primary themes during April, and for the better part of the year for that matter, has been the utter lack in volatility in most asset classes. While we have certainly had some thematic shifts to keep us busy, such as the flattening of the U.S. yield curve, the strengthening yen and subsequent decline in the Nikkei, and the continued weakness in small cap/higher beta equity sectors, many other classes remain frustratingly range bound. We point to the 2.6%-2.8% range for the 10 year treasury that has endured for the past 12 weeks, with only a few historical precedents that have seen yields in such a narrow range for such an extended period of time. We had a similarly narrow trading band in March 2013, which initially pushed towards lower yields on the concept of quantitative easing (QE)-infinity only to be reversed with last summer’s taper talk. We have to push our memories back to August 1998 to find the next example of a similarly narrow trading range, which was also interrupted by a strong downward move in yields ala the Russian debt crisis, but similarly reversed a few months hence on the turmoil created by Long Term Capital Management. We are not one to incorporate historical precedence into our fundamental analysis, but do find it interesting that rates surprisingly pushed lower in both of these historical cases, driven by an external market shock, and, in both cases, against all odds . Continue reading…