So we have held the bigger range nicely, sitting at 2.29 as I write. ECB helping today with an as expected announcement, so now the path is clear for what I would expect to be a fairly pure reaction to the number, whatever it is. My sense is it will be a bad number. Keep in mind that historically this number changes by as much as 1% in either direction before the final revision is posted, so there’s so risk to placing bets on either side beyond the assumed risk. You may be right even if you’re wrong and vice versa. Regardless of what happens tomorrow, save a blowout to the upside, #lowerforlonger seems well intact and I’d continue to lock/float the range as prescribed.
So here’s the trick. What’s the range? Is it 2-2.3, 2.3-2.6, 2.17-2.3? You get the idea. I’m not sure that matters and here’s why: I think you are in one of three camps. Someone that has been chasing rates since November, someone chasing since early 2017 or someone that just got into the game. I see the risk/rewards as different for each…
1. For folks hanging on since 2016, you really have little to lose here. Float seems pretty obvious.
2. For those who go into a couple months back, even as late as mid March, the play is a bit more difficult. We’re as much as 2 points off the bottom and only 75 bps off the year’s best levels. My bias would be a bit more towards locking here. #bullsandbears
3. Lastly, for those that jumped in around 4/18 and missed by a couple days and have been chasing, this I see as a bit more of a 50/50 proposition.
My bias would be to float anything two weeks out or more here. Even if tomorrow doesn’t go our way I don’t see us getting absolutely clubbed on the number alone. If you’re closing in the next week or so, you don’t have time to ride out a hit, so there has to be a bit more of a lean towards locking. One caveat is that it’s not always just about domestic data so don’t forget #wearenotalone
In the end if I had to smash all of these together here’s my bottom line is: 70/30% bad number + we’ve already backed up since 4/18 = float. Discipline is key here though. You can’t chase the loser. If you lose 25-30 bps on the bet, you lock it down and move on. I also can’t stress this enough, we are contemplating probabilities and not absolutes. I see the #risk/reward proposition as the main driver in the decision.