Big Day for Bonds!

Markets are closing out a wild day that has seen the DJIA plummet over 1,800 points while the long-bond has rallied almost 2 1/2 points. The combination of Second-Wave Covid-19 fears and yesterday’s apparent lack of sufficient cheerleading on the part of Chairman Powell have sparked a sudden adjustment in investors’ outlooks.

Despite yesterday’s pledge to keep rates low and asset purchases high, Mr. Powell’s somber, yet realistic, description of the nation’s economic challenges seem to have come as a surprise to equity investors. In its Summary of Economic Projections, the Committee’s median expectation for 2020 GDP to fall 6.5% likewise appears to have surprised many market participants. In its member survey of Unemployment expectations, the median response of a 9.3% Unemployment Rate wasn’t what equity investors wanted to hear, either. One can only wonder what it is they thought they were going to hear.

Bond investors heard that rates will be lower for longer and the Fed’s money pump will keep pumping money. That seems to be enough to have pushed the Ten-Year’s yield down to around 66 basis points while the Long Bond’s rally has driven that yield down to around 1.40%. And that on a day when the Treasury brought 19B brand new 30-years to market. Gold’s shine has dulled by about $10 to $1,728 while crude oil’s cruddy day gave up $3.50/barrel to around $36. Tomorrow morning brings news of Import and Export Prices along with the University of Michigan’s preliminary report on Consumer Sentiment.