Washington reached a deal to reopen the government and avert a default just hours before their deadline. Interest rates on ten-year Treasury notes fell on the news and are now down to 2.67%, about the same level they have been at since late September. Thirteen-week Treasury bills are up sharply since this crisis began.
Thirteen-week notes started trading yesterday with a yield of 0.14%, their highest level since March 2011. By the end of the day, the rate was down to 0.09%. These rates are still low but the jump demonstrates that markets are still vulnerable to news. Short-term rates were among the first sign of crisis in 2008 as thirteen-week rates jumped from 1.32% to 2.01% that summer. On a percentage basis, the recent move was steeper than that but because rates are so low, short-term fixed income ETFs have very low volatility and are not offering significant trading opportunities to traders. If long-term rates start moving rapidly, there should be a number of trading opportunities in ETFs and leveraged ETFs.
Today the markets will be trading without the threat of a Treasury market default for the first time in weeks. All of the major stock market indexes are slightly overbought and continued strength in the morning could be followed by a selloff. PowerShares QQQ (NASDAQ: QQQ) is the most overbought ETF among the indexes with a ConnorsRSI of 76.50. While there is room for QQQ and other index ETFs to move higher, traders should prepare to take advantage of a reversal.