Bond yields are down and the iShares 20+ Year Treasury Bond ETF (TLT) is up roughly 1% after the International Monetary Fund's managing director, Christine Lagarde, suggested the Federal Reserve wait until 2016 to increase interest rates.
In a week that already features Greek drama, nonfarm payroll results and an Organization of the Petroleum Exporting Countries meeting, Lagarde's comments are stealing the show, said Steve Grasso, director of institutional sales at Stuart Frankel. Speaking on CNBC's "Fast Money Halftime Report" show, he said that financial stocks should move lower on these comments, as lower interest rates for a longer period of time proves bearish for the sector.
Lagarde is also worried about a lack of liquidity in the bond market, added Joseph Terranova, senior managing partner at Virtus Investment Partners. "There clearly is an issue" with it, which will likely add to the volatility in bonds. When the stock market eventually starts to sell off, it could get ugly, he cautioned.
The recent volatility isn't that surprising, according to Suni Harford, head of markets for North America at Citigroup. Investors now are tuned into the bond market and Europe rather than typical market-moving events like a labor report. They are concentrating on the long term and looking past several short-term events, she said.
While volatility has increased in recent trading, Pete Najarian, co-founder of Optionmonster.com and Trademonster.com, was quick to point out that the volatility index is still relatively low. He also noted that there has been some bullish options activity in the Chicago Board Options Exchange Volatility Index (VIX.X) in the June and July expirations, suggesting that investors are looking to buy portfolio protection for the next two to six weeks.