Bond Traders Exit Pivotal Week With No Signs of Fear

There were many reasons for the U.S. bond market to make a major move last week. Traders were inundated with key events and economic news, from multiple central bank meetings including the U.S. Federal Reserve to Washington politics, and from the Treasury Department’s funding plans to reports on jobs and manufacturing. Perhaps that was all too much for traders to feel like they could accurately handicap the risks, so as the dust settled the Treasury market was basically stuck at where it ended the previous week in one of the least volatile periods in recent years.

In the market for U.S. Treasuries, options premiums have fallen back to new lows and there is no sign of fear evident among complacent traders as they sit around and wait for the Fed’s December meeting and watch how the Republican tax plan unfolds in Washington. Once the business-friendly template was released, the lobbyists and dissenting legislators went after it like starving hyenas, especially the housing industry after it saw the deductibility of mortgage interest cut in half at the high end of that market. It seems that the only thing all parties agree on is that the bill could be delayed well into 2018, and it will not resemble the package offered last week. That leaves bond traders uncertain about the long-term supply-side impact from the tax cuts, and unwilling to bet this early on its success or failure.