USTs 'aggressively mixed', outperforming BUNDS ... while we slept; China SOLD. Again (who bought?); 60/40 still NOT DEAD; animal spirits say ...
Good morning … China SOLD USTs now taking their holdings below $1tril for the first time in a long while. The thing is, China selling isn’t news. HERE is a visual from ZH
China's holding of US Treasuries fell below $1 trillion for the first time since June 2010...
So it would seem to have been THE story in 2013 going into 2014 (and ever since) but please, when you see / read / hear about how China SOLD, keep in mind proper context.
The entire POST is worth a look as one of MY favorite aspects of the TICS report was also detailed,
.. foreign private investors (not central banks or reserve managers) bought a record $133.94 billion in May...
Yes, foreign official holdings SOLD but the idea that those who have freedom to choose (and NOT defend / react / panic to FX moves) where to put their funds to work, high and rising rates (as was the case back in May on thru middle June), piled in TO USTs by a RECORD AMT.
Now it’s NOT to say there’s nothing TO the argument best laid out by DBs Alan Ruskin in a visual,
The latest May TICs data showed a collapse in Treasury holdings that was expected because of capital losses related to higher bond yields.
The biggest losses were sustained by China in part because China was continuing to reallocate away from Treasuries to agencies, according to the latest data.
… here is a snapshot OF USTs as of 725a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are aggressively mixed and sharply outperforming German bonds after an ECB sources piece ( link above) said that a 50bp will be discussed this week. DXY is notably lower (-0.75%) while front WTI futures are -1%. Asian stocks were mixed, EU and UK share markets are little changed ( save for Spain's IBEX at +1.25%) while ES futures are showing +0.9% here at 6:45am. Our overnight US rates flows saw Tokyo return from a long weekend to a 'muted' session where some buying was seen from credit hedgers and real$ (mostly in 10's). In London's AM session the desk noted how the phones were NOT ringing there. Maybe it's too hot to trade? *UK TEMPERATURE REACHES HIGHEST LEVEL ON RECORD, MET OFFICE SAYS (BBG). Overnight Treasury volume was ~75% of average overall with 20yrs (223%) seeing relatively elevated turnover ahead of tomorrow's auction.… June's price action and closes confirmed: A) that investors massively rejected 5y Tsy rate levels above the 2018 cycle high (~3.10%); tracing out a giant monthly Shooting Star trend exhaustion candle (see first attachment) in doing so and B) long term momentum (which guided consistently bearishly since the fall of 2020 and ~0.38% 5y rates) got deeply oversold and the month's long bear signal was negated by June's close. The upshot, in our view, is that belly rates are now in a range (say, 3.50% to 2.71%) as the forces of Inflation versus Recession battle it out.
… and for some MORE of the news you can use » IGMs Press Picks for today (19 July) to help weed thru the noise (some of which can be found over here at Finviz).
Just a couple / few items from the inbox this morning …
First up from the fixed income CHARTS department (and 1stBOS)
10yr US Bond Yields have settled into a tight range over the past week as we continue to monitor the risk of a major top…
… Short-term Strategy: We stay tactically bearish from 2.985%, looking for a short-term swing higher to support at 3.255%, where we would turn tactically neutral. Resistance stays at 2.855%, below which we would also turn tactically neutral.
I’d ALSO note as you flip through the pages of the REPORT you’ll note some levels where this group would BUY BONDS
… We would turn tactically bullish at support at 3.395%, with scope thereafter for an eventual swing lower to 3.00%, with support at 3.50% expected to hold on the topside.
Have your cake and eat it too? Bullish AND bearish. BEARISH willing to not just buy to cover but also get long … There is something of a narrative for everyone and in technical analysis — the study of the price movement — there is some degree in truth.
Remember, 20yy auction tomorrow — perhaps a liquidity event one needs to ‘buy dip’ for whatever the reason.
Perhaps another reason — aside from / along with price action alone — there are some ‘animal spirits at work? Wells Fargo,
Special Commentary — July 19, 2022
The Animal Spirits Index Signals RecessionThe Animal Spirits Index (ASI) remained in negative territory in June, inching up to -0.36 from -0.40 in May. The ASI closed out the first half of 2022 with six consecutive months of negative values—a trend associated with past recessions.
And from MS (in the case you missed all the 60/40 NOT DEAD YET items from this weekends sellside observations),
Cross-Asset Dispatches: Short Takes on Big Debates
… Is the 60/40 portfolio over? No.
There has been lots of focus on potentially lower long-run returns for a 60/40 portfolio. YTD price drop in a 60/40 portfolio has been extreme. We don't think this means a 60/40 allocation is 'over'; rather, those concerns around low returns were well founded, but are also being addressed by the (extreme) recent price drop.To be more specific, our long-term return estimates (like a lot of people) pointed to historically low returns on 60/40 Equity/Bond portfolios in the US and Europe at the start of 2022. But as prices have declined, those expected returns have gone up. Over the next decade, they suggest a 60/40 portfolio could do better then the recent experience (see Cross-Asset Dispatches: Where Are Risk Premiums Now?, 24 Jun 2022).
Exhibit 7: US 60/40 expected return
That in mind — the idea that bonds may STILL have more fun,
Seeking Alpha: Time For Treasuries
After a bruising two years, it may be time for long-term U.S. Treasuries to find their footing and even start working their way back to the upside.
Growth forces are already working in favor of U.S. Treasuries, and marginal pricing relief may soon add support.
Notable correlations also suggest that yields may have at least found a floor and that long-term U.S. Treasury prices may be set to rise from here.
And now for a bit of a walk down memory lane … a quote from none other than Ben Bernanke via RTRS,
JULY 19, 2007
Subprime losses could hit $100 billion: Bernanke… “The credit losses associated with subprime have come to light and they are fairly significant,” Bernanke told the Senate Banking Committee in a second day of testimony on the Fed’s twice-yearly economic report.
“Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems,” he said, referring to a segment of the mortgage market that caters to borrowers with shaky credit.
Not sure where the NEXT 50-100 ‘Bs’ loss coming from but having seen pan-handlers out in force this past weekend here in my ‘tony’ suburbs of Monmouth County and plenty of talk of mortgage lending going down ‘that road’ once again, I can’t help but think there’s nothing in life without a consequence. Some good and some, well, less good.
A(nother) cost-of-living crisis on the way? Depends on The Feds next (couple/few)moves. But first we’ll get something from the ECB on Thursday and on THAT note, back to RTRS earlier today
ECB weighs bigger rate hike with safety net for indebted countries
By BIGGER they mean to suggest 50bps rather than just 25bps. We ain’t in Kansas anymore (where Kansas is defined as 2018 in the Marriner S Eccles building and 2011 ECB — the last time they hiked then had to pivot nearly instantaneously).
Finally — and on a less grim note — in case you were ever wondering just how it is that same-day delivery works, well
Its funny because it’s true … THAT is all for now. Off to the day job…