Searching for ways to better understand the fixed income space or looking for actionable ideals in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit every Wednesday. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1 year return profiles for a cross section of the fixed income world.
In this week’s note, we look at the driving factor in Treasury yields since they peaked in December, as well as that influence’s (low) predictive value for the economy.
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After a post-election surge in December, homebuilder confidence pulled back more than expected to kick off the year. While economists were forecasting the NAHB homebuilder sentiment survey to come in at a level of 69 this month, the actual reading came in two points lower at 67, and down three points from December’s originally reported reading of 70. We would note that last month’s initial reading was also revised down one point, so the m/m decline was just two points. Looking at the chart below, even after this month’s decline, sentiment remains above every other reading of this expansion prior to December.
The table to the right shows the breakdown of this month’s report by traffic as well as present and future sales along with sentiment broken down by region. Every component of the overall index declined in January, with the biggest decline coming in Present Sales while Traffic saw the smallest decline. In terms of regions, sentiment on the coasts saw the largest decline, while homebuilder sentiment in the Midwest, which includes the rust belt states that went in favor of Trump, was unchanged at its highs for the cycle. Even for the other three regions, though, it is important to remember that January’s decline in sentiment comes from what were the highest levels of the cycle.
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We’re happy to announce that the newest episode of Bespokecast is now available to the general public both here and via the various podcast platforms. Be sure to subscribe to Bespokecast on your preferred podcast app of choice to gain access to our full collection of episodes. We’d also love for you to provide a review as well!
In our newest conversation on Bespokecast, we speak with investor, blogger, analyst, and commentator Meb Faber. Meb is the CIO of Cambria Investments, has written three books on investing as well as 10 white papers and countless blog posts. You can follow his work at MebFaber.com. Cambria’s ETFs cover a broad swathe of US and global equity markets as well as asset allocation and fixed income. For Meb and Cambria, evidence-based investing is at the core of their investment approach, and we spend much of the podcast discussing the specific investment strategies this leads to. We were thrilled to record this conversation and are very excited with how it turned out. We hope you feel the same!
Each new episode of our podcast features a special guest to talk markets with, and Bespoke subscribers receive special access before it’s made available to the general public. If you’d like to try out a Bespoke subscription in order to gain access to these podcasts in advance, you can start a two-week free trial to check out our product. To listen to episode 5 or subscribe to the podcast via iTunes, GooglePlay, OvercastFM, or Stitcher, please click below.
It seems that most forex and futures symbols continue to run in circles ahead of the Friday presidential inauguration and unfortunately I found little to share on that front. Which leaves us only with stock symbols but fortunately I was able to uncover a few goodies.
First a quick update on our LXP campaign which I posted for the subs last week. We snagged a pretty decent entry and thus far it’s sticking to the script. Time to advance or stop to near the break/even mark at 10.79.
APC is a possible long term campaign which is why I’m showing you the weekly and monthly panels. As you can see it’s been trading inside of tight range for the past few weeks and I’m sure it wants out. As it’s near the lower boundary plus given the monthly context I am tempted to grab a long position with a stop below 68.
Seasonality courtesy of Financhill – click on the chart or here to look at a dynamic chart plus some juicy stats. I don’t see any red flags here so this is a go for me.
LOW has been trading even lower lately but managed to reconquer a daily NLBL plus its 100-day SMA. I’m interested in a long position but only if it drops back down to the 72 mark. Stop would be placed below 70 – how’s that for nice round numbers?
Seasonality very supportive – we’re looking good here.
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Instead of simply recounting what you did right and wrong and what you'd like to do going forward, grade yourself on your consistency.
Your consistency grade requires a list of your best practices. These are the things you do when you're at your best. They can be lifestyle choices, such as how you eat or exercise; they can be best trading practices; they can be best practices in terms of your romantic and family relationships. In other words, the list consists of the things that define you at your best.
Your consistency grade represents a frequency count of the number of days in the past week in which you have enacted that best practice.
When our two youngest children were very young, we created "sticker charts" for them. Each day they cleaned their room, played well together, and ate well, they received a sticker. If they received stickers every day of the week, they could cash those in for a toy or fun thing to shop for over the weekend. The key to the exercise was the requirement that stickers had to be earned every day. That rewarded not just good behavior, but consistency in good behavior. It's that consistency that builds positive habit patterns.
Imagine an adult equivalent of the sticker chart: If you can check the boxes on your best practices list every day, you arrange a reward experience on the weekend. Perhaps it's a reward experience with someone you love, giving an extra incentive to achieve consistency. Most traders are achievement oriented. If they set up this kind of system and make it public (we hung the sticker charts on the refrigerator), they will want to check the boxes. They will not want to fall short of a goal they commit to.
The hard part in making changes is getting to that place in which desired behaviors become routine behaviors. It's easy to fall back into old patterns before the new ones take root. Structuring your work on yourself--and on your trading--as work on consistency helps you make that transition, building those new, positive habits one day at a time.
Further Reading: Turning Success Into a Habit