In swimming there is this thing called the doggie paddle. It’s not one of the strokes you see in the Olympics because it’s not the most efficient way to use your arms to propel yourself through the water. Dogs use it because they can’t do the butterfly or back stroke (through frogs seem very adept at the breast stroke). Kids use it when they are learning how to swim. The doggie paddle is used often when one is tired of swimming, or when you just don’t know where you are going.
If I was asked what stroke the mortgage bonds are demonstrating at the moment, I would have to say that it looks like the doggie paddle. There is a lot of intraday movement happening, but rates have stayed stagnant now for six weeks. Bond traders are expending a lot of energy and not really getting anywhere. They have been at it since the first week in July, and my guess is that they are getting tired.
And I don’t think that the doggie paddle is limited to movement in the Bond arena. The main topic for this weekend’s Jackson Hole economic symposium (attended by finance ministers and central bankers from around the globe) will be “Designing Resilient Monetary Policy for the Future”. Because economies all over the world have been doggie paddling for a very long time now. Good luck to you on your speech and your design Ms. Yellen. The next Fed meeting starts on the 20th of September where there is an 18% chance that the FOMC will raise rates.