while we slept; NO foreign bid and a seasonally bearish window into month-end; so much for diversification ... 60/40s worst start since '08;
Good morning…where things settle at weeks end far more fun-TER-taing than where we began and with that in mind, I’ll continue to watch 30yy and momentum which (remains) oversold,
With Japan out on holiday overnight, we’ve gotten confirmation from the Chinese they will be increasing policy support to help spur growth towards target…Goldilocks,
So now the Japanese have some continued run support as they REMAIN activist in the JGB market, I suppose, and we all know that you don’t fight (communist or otherwise) ‘city hall’.
Said another way, what is it THEY know that the US FOMC does not (or was yesterday’s GDP a precursor)?
… here is a snapshot OF USTs as of 719a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
With Japan out on holiday, UST futures volumes are running 60-70% of the 30-day average. But, this hasn't stopped a bearish-flattening continuation from yesterday, higher than anticipated Eurozone core inflation resulting in EGB weakness, while optimism over Chinese macro-prudential easing efforts left the MSCI Asia Pacific Index advancing as much as +1.3% overnight (and regional tech indices printing 2-sigma gains, HSTECH +9%). In FX-space too, the USD rally has been halted (DXY -0.6%), with CNY +0.7%, EUR +0.6% and AUD +1%...potentially on a mix of month-end re-balancing and risk-asset sentiment. USTs are being led lower by the front-end and belly (2s5s10s +1bp, 5s30s -2.25bps), Crude Oil +1%, and S&P futures -37pts here at 7am.… Regarding month-end seasonal pressures, David Bieber's latest work shows that USTs are entering a tactically bearish window opening in 10y rates for the next 6-8 days (our first attachment today).
… No Foreign Bid: Japanese Ministry of Finance data released Thursday found domestic investors were net sellers of Treasuries to the tune of around $9 billion. It was the eighth such week in the past nine, and net sales over the past 13 weeks have totaled $60 billion -- even if it’s still a drop in the $3.89 trillion bucket held by Japanese investors (BBG).
… and for some MORE of the news you can use » IGMs Press Picks for today (29 April) to help weed thru the noise (some of which can be found over here at Finviz).
As we head in to weekend where I’m hopeful to have some more time to hunt / gather some intel and who knows, maybe even offer some views, there are a few things which hit my inbox and are worth some consideration …
DIVERSIFICATION? How’s that 60/40 treating you, these days? BLOOMBERG:
… I’ve poked fun at obituaries for the 60/40 portfolio in the past, but given how remarkably bad performance has been, it’s time to check in again. A Bloomberg model tracking a portfolio of 60% stocks and 40% fixed-income securities has dropped about 10% in 2022, so far enduring the worst year since 2008.
That’s just a preview for how bad things could get for the popular asset-allocation strategy should the U.S. actually enter a recession. That’s the view of rates veteran Harley Bassman, creator of Wall Street’s famous MOVE Index to track Treasury volatility.
A toxic combination of fiscal largesse, a shrinking U.S. labor pool, broken supply chains and still-elevated asset prices all mean that inflation likely has yet to stabilize. If that’s the case, bond yields would likely continue to climb higher even should economic growth contract -- meaning that Treasuries would provide little shelter from falling equity prices.
“For the past 20 years, stock and bond prices moved in the opposite direction,” Bassman told me via email. “But there have been times when they ride up and down in unison, and this would be a disaster for a 60/40 portfolio.”
Bassman sees long-term rates “in the ballpark” of 4% as the threshold for where the stock-bond correlation might flip -- meaning bonds will fail to cushion equity losses. Yields on 10-year Treasuries are currently trading near 2.82%, while 30-year rates are hovering around 2.89%.
That’s a lot of gloom and doom, and of course, there’s still little reason to expect the U.S. economy to imminently descend into a recession. Despite last month’s scary yield curve inversion, the labor market and the American consumer are hanging tough.
Still, the warnings are getting louder. Deutsche Bank economists warned of a deep U.S. downturn next year this week, while Goldman Sachs Group has estimated chances of a contraction at about 35% over the next two years. Meanwhile, Ed Yardeni of Yardeni Research places the odds of a U.S. recession at 30% next year, up from an earlier forecast of 15%…
… THAT is all for now. Off to the day job…