UMBS started the week off down 9 bps. S&P futures are up 24 pts
US stock futures rose and longer-maturity bonds retreated as investors ratcheted up wagers that Donald Trump would win the presidential election after an assassination attempt.

Markets are positioning for a Trump return to the presidency that brings more tariffs and increased spending, moves that could spur inflation. According to Cole, that could make the job of the Federal Reserve “a little more difficult,” even as signs mount that the pace of price growth is coming under control. Essentially the Trump Trade is a bet on growth, and the key variable to watch will be the shape of the yield curve. We should see the yield curve continue to reduce its inversion if the markets see stronger growth going forward. On the other hand, assassination attempts generally don’t signal stability which will be negative for the US dollar at the margin.

Don’t worry, the headline is much more dire than the underlying message.  Long story short, there are always some counter-trend influences even when the bond market is trending decisively in one direction.  One might refer to the trend since May or to last week’s CPI reaction as decisive.  As such, one might increasingly expect some ground to be given.  We could certainly argue that we’ve seen resistance in bonds ever since the middle of Thursday morning, following the CPI rally.  In a figurative sense, this re-sets the board for the next move, and big ticket economic data helps determine the direction of that move.

Last week’s CPI helped solidify the on-again, off-again downtrend in rates that began in May.  The burden of proof is increasingly on bond bears and upbeat econ data.  That is welcome news for risk-tolerant clients, but it’s good to remember that there are always pockets of correction in any trend.  The more we push long term lows, the more such risks make sense to consider.  Beyond that, “data dependency” reigns supreme.  In the shortest term, Tuesday’s Retail Sales is likely the biggest risk of the week on the data front.

UMBS ended the day down 17 bps at 100.97