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.
Jon Najarian, co-founder of Optionmonster.com and Trademonster.com, added that the jump in volatility has been noticeably lower compared with previous times when investors believed higher interest rates could be on the way. Because the Fed's chairwoman, Janet Yellen, has spoken to investors about a higher-rate environment, more investors are now prepared, he explained.
Even if interest rates do increase, they will not be at a level that will put a drag on the economy, Harford said.
The conversation turned to Twitter (TWTR), whose share price has plummeted 23% over the past three months. Scott Devitt, a senior analyst at Stifel Research who rated the stock a hold on May 3, said he expects earnings the next quarter to be weak as well, based on management's comments that the company didn't get off to a strong start. CEO Dick Costolo's job may not be safe if he can't turn around Twitter's results and boost its user growth.
If the next quarter is bad, Twitter's stock price could really be in trouble, Terranova added. Despite the decline, investors should refrain from buying the stock ahead of its earnings report. Instead, they should wait for the results and listen to the conference call to see if the situation is improving.
Twitter needs to boost its user growth, stressed Pete Najarian. That will get the stock price moving higher. Investors who want to be long Twitter should look to buy call options, which have low implied volatility right now, he said.
The last time the stock was at these levels, Jon Najarian was kicking himself for not buying the stock. Yet following Costolo's failure to live up to his previous promises, he is hesitant -- though tempted -- to buy the stock again at these low levels. For now, he's resisting the urge to buy the stock.