LEX Pleasing to the egos of bond managers everywhere, the epithet “vigilante” evokes a band of righteous souls committed to holding wayward governments to account. It is wrong, however, to confuse activism with omniscience – fixed income investors are just as likely to be wrong as everyone else over the coming months.
Certainly there is muddle-headed thinking at both ends of the yield curve. Take the jump in short-term yields since Friday’s stronger-than-expected employment report. Anchored at 1 per cent or so for the past month, the December contract for eurodollar futures suddenly popped over 30 basis points, suggesting traders were pricing in a possible rise in interest rates towards the end of the year. Two-year Treasury notes also sold off.
