while we slept; sell stocks buy bonds; who will buy? a rates peak near? updated f'casts and a few charts...
Good morning. As ‘TK’ on BBG put it best, the war in Ukraine continues as the (empty)suits and ties meet. Just another day in paradise … where just yesterday, long bonds were up bigly. Today they are down 1/2 bigly today.
price discovery process could be a bumpy one…
More on that true’ism in a moment.
No matter WHAT we think we think or whatever happens in this world, one thing remains as true and constant today, as ever. Along with death and taxes, haters gonna hate the bond market. They’ve been right recently and hats off to the anti-transitorians. They’ve NAILED it … The haters can and DO make a VERY compelling argument on occassion and this chart is one such example. From the AllStarCharts team,
It’s beginning to feel more and more like a risk-on environment out there.
Commodities are ripping higher. Stocks are digging in at critical levels. And defensive assets such as Treasury bonds and the Japanese yen are in freefall…
…the price action from this classic intermarket relationship suggests that stocks are still the place to be.
What this ratio really tells us is where the alpha is between these two major asset classes…
… one thing that remains clear is that we still want to be buying stocks and selling bonds.
Yesterday’s move lower in yield, well, WAS one in a row so no victory laps YET (or short squeeze) and also not a surprise to some (of the ‘fastmoney’ crowd) noted HERE YESTERDAY including the cursory ‘field of dreams’ clip.
Moving along, here is a snapshot of UST rates, prices and moves as of 756a
And behind some of this price action
WHILE YOU SLEPT
Treasuries are notably lower, retracing much of yesterday's rally, and the curve is steeper out to 10's on a busy day for CB rate decisions (see above) and a busy day for US data and Fed speeches too. DXY is higher (+0.15%) while front WTI futures are little changed after yesterday's notable gains. Asian stocks were mixed, EU and UK share markets are mixed/little changed and ES futures are showing +0.6% here at 7:20am. Our overnight US rates flows saw pretty heavy selling during Asian hours after yesterday's NY run-up in prices. Our Asian desk colleagues suggest that any further rallies might be met with further selling from their region. There was a 5.4k block sale in FVs that was only partly offset by a 3.4k block buy in TU's. Overnight Treasury volume was about average overall with 20yrs (240% of a very low base) seeing the highest relative turnover this morning.… Our first attachment today shows the bullish Outside Day traced out in 30yr Tsy yields yesterday. Note also in the lower panel that daily momentum is indicating that the ~3-week up -move in yields is also looking extended or perhaps over-subscribed. We thought the set- up for a corrective move to lower rates was looking good yesterday. Alas... Then zooming out a bit and to the weekly chart of Tsy 30yrs and one thought is that 30's might be 'settling' into a new, higher range defined by the boundaries (2.44% below and ~2.665% above) we've drawn in. So one idea is that these presumed range thresholds might be the place to fade local trends?
Turning TO another morning comment — best in biz — stating the obvious
… Overnight Flows
Treasuries weakened overnight with the 7-year sector the decided outperformer. Overnight volumes were elevated with cash trading at 111% of the 10-day moving-average. 5s were the most active issue, taking a 36% marketshare while 10s managed just 26%. 2s and 3s combined to take 20% at 11% and 9%, respectively. 7s took 7%, 20s 3%, and 30s 8%. We’ve seen buying in 2s and two way flows in 10s.
… and for some MORE of the VIEWS you can use » or the ‘Knowledge without the noise.’ » Head over TO harkster.com and click the econ & policy tab or even the FI LINK. For somewhat more, Finviz …
Jumping TO what is on global Wall Street’s mind and finding it’s way into our collective inbox, this one FROM WELLS FARGO clearly caught my attention, and it should be noted it dropped BEFORE the STELLAR 20yr auction (prices at record HIGH YIELD with a record HIGH BID-TO-COVER, DIRECT (ie DEMAND) and record LOW DEALER TAKE (ZH HERE)
… Some major buyers over the past couple years, such as domestic banks, pension funds and private foreign investors, will probably continue to purchase Treasury securities at a solid clip. However, the pace of buying may slow, especially for domestic banks. In addition, other entities such as state and local governments may hold their Treasury security positions flat or even become net sellers. This leaves households as the sector that may need to step up the plate in a material way by purchasing Treasury securities directly or indirectly through money market funds, mutual funds and ETFs. Households are well-positioned to increase their Treasury security holdings, but at what price remains an open question.
The price discovery process could be a bumpy one…
They single out HH holdings which are quite low,
… Not only are households' direct Treasury holdings unusually low, but the sector appears to have the firepower to reallocate some of its cash holdings into government debt. According to the Financial Accounts release, households' holdings of currency, checkable deposits, saving deposits and time deposits were $11 trillion at the end of 2019. By the end of 2021 these combined assets had risen to $15 trillion, a 38% increase in just two years.
Oh, OK then. A concession was on offer and it was treated as such.
In as far as the 20yr auction goes, just after 1pm yesterday, messages like this hit:
20-year auction stops through 1.1 bp - record low dealers
Treasury 20-Year Bonds Stop Through, Get Record Direct Demand
Refer back TO ZH above and moving along, a few other items from Global Wall Street inbox,
NWM: US rates close to peaking? Our updated forecasts
Since we’re talking about updated calls, THIS FROM JEFF,
And then there’s this lesson from history via GS
…where you’ll find this visual (which politicians wish we didn’t know existed and HOPE for a different outcome this time)
Mike Wilson / MS has a different view, we know.
IN the CHARTS category, one that everyone’s watching — longer-term down-trend in yields
Here’s 1stBOS on longer end of the yield curve
Long-end Bond Yields can still rise further
Here’s 1stBOS on CREDIT,
Turning tactically bullish US High Yield
Here’s one from KIMBLE on the USD reaching PIVOTAL L/T RESISTANCE
Finally, here’s one from TWITTER with the (2s10s)curve and STOCKS which is interesting,
And just because … you know, the Fed and rates market participants are in a tight spot,
… THAT is all for now. Off to the day job…