while we slept; "Closing Our Underweight in Government Bonds"; getting long
Good morning. With The Masters (isn’t Boom Boom’s swing STILL best around and least talked about given Tiger’s return?) and NYY opening day, I’m going to skip ALL the pleasantries, jump right in …
Here is a snapshot of UST rates, prices and moves as of 725a…
… And HERE is what other shops saying behind the overnight price action … This is from ‘best in biz’ — a morning comment titled, “The Friday Fade”
… Overnight Flows
Treasuries continue to stabilize and overnight the curve flattening resumed with 2s/10s dipping to 13.9 bp. Overnight volumes were modest with cash trading at 71% of the 10-day moving-average. 5s and 10s were tied as the most active issues, each taking 29%. 2s and 3s combined to take 29% at 13% and 16%, respectively. 7s managed 8%, 20s 1%, and 30s 4%. We’ve seen buying in 30s and two-way flows in 10s.
… and for some MORE of the news you can use » IGMs Press Picks for today (08 April) to help weed thru the noise (some of which can be found over here at Finviz).
From the other day, a couple TECHNICAL updates which I thought may (still)be of some interest.
1stBOS remains aggressively NEUTRAL, offered another MONTHLY 10yy
…We have been expecting the market to find a peak around this crucial long-term support during Q2, however we maintain our medium-term bearish view until we see concrete signs of rejection from this key support level, with first minor resistance at 2.545/54%. If we do see a weekly closing breakout above 2.645/66%, we note that the next support is at 2.795/815%…
and offered an IDEA in as far as (getting)LONG BONDS go,
Short-term Strategy: We would turn tactically bullish at support at 2.68%, with scope for a reversion back towards resistance at 2.50%, where we would turn tactically neutral. Next support is seen at 2.765%, above which we would also turn tactically neutral.
30yr US Bond Yields tried to break out above their July 2019 high, however short-term momentum looks increasingly tired.
For another way in which to consider longer-bond yields and drivers and with a more technical approach, McClellan Financial’s latest Chart In Focus (T-Bond Yields Following Gold’s Footsteps) suggests we all might out to be following GOLD and by at least THIS methodology,
… It is hard to imagine bond yields reaching a peak so soon, with no apparent end to inflation in sight. But that is gold’s message now, and gold has been pretty good at telling us what is going to happen. The news then follows to fill in the story line …
I’d add TO this a recent chart from KIMBLE on INDU, ‘struggling at major fibo’
With some technicals of bonds AND stocks in mind, this hit global Wall Streets inbox overnight and I thought it interesting enough to pass along. Morgan Stanely,
Closing Our Underweight in Government Bonds
With US Treasuries looking better on our cross-asset framework, we close our U/W in government bonds, held since July 16, 2021.US Treasuries - Better on the framework: Our cross-asset framework weights both bottom-up expected return, and top-down cycle-adjusted risk premiums. Following the recent sell-off, US Treasuries look better on both. With the US 10yr reaching our US rate strategists' year-end target of 2.60%, and our cycle-indicator increasingly extended, we raise our UST weight from -3 to 0. Our weight to EU duration (via DBRs) remains mildly negative.
Cash down to equal-weight: We fund this from our OW in cash. While cash has helped investors avoid larger losses almost everywhere else, it now looks more balanced vs. bonds on our framework. Moreover, we think bonds increasingly provide 'ballast' to cross-asset portfolios, and a hedge against weaker growth, at current yields.
Risks, and other considerations: This is a strategic shift; we aren't trying to time the market. That said, we have hit our US rate strategists' year-end targets, our economists expect US CPI to peak with next week's reading, bond vs. equity seasonality improves from May, our CANARI indicator is positive on US Treasuries, and the market has rapidly priced in more aggressive Fed expectations. The risk is that bond yields are still low vs. history and a regime shift may be underway. We see enough questions to move to neutral.
Our allocation to US Treasuries over the last three years
… We think many investors are weighing when to cover a duration underweight.For all the reasons above, we think this is 'good enough' for now,and will re-evaluate when we do a major update of our economic expectations in mid-May. We retain a negative bias toward EU duration, following further upward revisions to our strategists' forecasts (see Global Macro Strategy: European Rates: Revising Our Yield Forecasts Higher, April 5, 2022).
Topping MS is the following from Barclays,
And from THE REPORT, one of MY favorite visuals,
And another,
… growth forecasts also look a tad optimistic. Figure 16 shows that the consensus growth forecasts for the second half of the year and first half of next year have fallen just a touch despite a sharp tightening of financial conditions. While equities and the USD haven't moved much, private borrowing rates have risen significantly and very sharply since the beginning of the year (Figure 17), which should have put a dent in the growth outlook…
Moving along, HERE is your Weekly FIX from Bloomberg … the newsletter where we celebrate the start of the U.S. baseball season with a solid diet of yield curve balls …
A More Hawkish Fed Sets a Steeper Path for Bonds
… Even as the central bank’s almost desperate focus on fighting inflation spurred traders to price in the most aggressive hikes since 1994, the real bombshell came when Governor Lael Brainard put quantitative tightening on the table for May’s meeting.
There was more than a whiff of complacency evident in the way yield curves flipped from serial inversions to an outbreak of re-steepening, while risk assets shuddered …
… Bottomless Drop
The backdrop to all of the above is that there’s no end in sight for the unprecedented global bond rout. One week into April it looks like the record eight-month losing streak for the Bloomberg Global Aggregate will extend to nine at the very least. The index even slumped to a discount for the first time since 2008.Just about the only bond investors smiling are those who put on big shorts, like Crispin Odey. His flagship hedge fund has generated 53% year-to-date returns. Macro trader Said Haidar has done even better, with a more than 148% gain after he said he was positioned for tighter monetary policy.
The epic losses in bonds are spurring a record buying spree as institutional investors seek to rebuild their portfolio exposure to desired levels. Unprecedented billions flooded into the iShares 20+ Year Treasury Bond ETF and the Vanguard Total Bond Market ETF after the funds dived in value.
Question or note to self, these EPIC GAINS must have come at a cost and one that has yet to be fleshed out (at least in the story) as years of betting against bonds must have cost mental as well as physical capital, no?
As we collectively await Q1 HIMCO thoughts from Lacy Hunt, I thought I’d follow YESTERDAYS post (with link back TO his Q4 thoughts) with an audio visual from Feb just after a CPI
The Lacy Hunt's guest appearance on the Keeping It Simple webinar was just AFTER CPI which made it all the more fun-ter-taining.
Harley Bassman — THE convexity MAVEN (@ConvexityMaven): I challenge Dr. Hunt and @profplum99 to explain why inflation will recede and the economy will soon turn South
Who do you believe, me or your lying eyes ?
And … THAT is all for now and may very well be all for the weekend. Thing 1 turns 21 today and I’m on a road trip tomorrow — delivering pizza, bagels and beer … in other words,
Off to the day job…