Whats next?

So we understand that uncertainty is on the rise. We here at DeepThought keep hearing how people are close to neutral on most positions. No overweights or underweights either way. At least not in size.

But humour us this. You know rates are going to rise. 10 year UST's are ending the year 2.75% to 3.00% by most sell side estimates. Most buy side as well. And yes estimates are just that and very rarely hit the mark, but we'd say the probability is heavily skewed towards higher rates (tapering is coming and the scale is the variable not the if part)

So why would you not be short rates? Why wait for better entry points. Leg into it, but put it on regardless.

And then the tricky part. Higher rates with higher credit spreads/lower equity or higher rates with lower credit spreads/higher equity levels? Well, volatility is going to rise, or better yet VIX will rise. It's too low, the fed keeps giving confusing and contradictory statements, there's too much priced in, etc etc.

As of now, we're betting for higher rates, higher credit spreads and lower equity levels in the next 3 months. If we're wrong on one of those 3 its bearable. More than that, we never had this conversation.

by CrazyDiamond