By Notes From the Rabbit Hole
We began the Amigos theme last year in order to be guided by the goofy riders during the ending stages of a cyclical, risk-on phase that was not going to end until the proper macro signals come about, no matter how many times the bears declared victory along the way. The fact that grown adults see conspiracies around every corner (okay, I see them around every third corner myself, but work with me here) makes such macro signaling very necessary in order to keep bias at bay.
Continue reading SPX/Gold, 30yr Yields & Yield Curve – Amigos 1, 2 & 3 Updated
By Anthony B. Sanders
MOVE And Tyvix Spike (Do The Fed Tighten Up?)
Bridgewater Founder Ray Dalio said back in January 2018 that “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981.”
Well, we are still in a higher bond duration section of the Price/Yield curve where further increases in yield shifts can clobber Treasury prices.
Like the recent decline in 10-year Treasury Note prices.
Continue reading Are Treasury Yields Rising TOO Fast?
By Anthony B. Sanders
…As 10Y-2Y Treasury Curve Flattens To 18.75 BPS (REAL Fed Funds Target Rate Remains NEGATIVE)
We have been watching out for the US Treasury yield curve to invert (e.g, 2-year Treasury yields greater than 10-year Treasury yields).
And the US Treasury 10Y-2Y slope has flattened to 18.75 BPS.
Continue reading US OIS Forward Swap Inverts For First Time Since June 2007…
By Heisenberg Report
When last we checked in on bond king for the post-Gross world, exposer of WSJ conspiracies, and man who showed up at Sohn dressed in a Jack Nicholson Joker costume, Jeff Gundlach, the DoubleLine boss was busy explaining how the U.S. was mixing up a toxic cocktail of Fed hikes and deficit spending.
Specifically, Jeff said the following during his latest webcast:
Increasing the size of the deficit while we’re raising interest rates almost seems like a suicide mission.
Right. And you can trust him on that, because any man brave enough to wear a purple corduroy halloween costume in late April is a man who knows something about “suicide missions”.
Here’s the chart, although there’s nothing at all unique about it:
Continue reading ‘It’s Like A Death Wish’: Jeff Gundlach Takes Aim At Toxic Policy Mix, Demands You ‘Respect’ The Curve
By Kevin Muir
It’s now cool to be bearish bonds. A couple of years ago you were labeled a pariah for even suggesting inflation might pick up. The few of us that argued locking in 10-year money at 1.4% wasn’t a good risk reward supposedly didn’t understand the overwhelming three Ds – debt, demographics and deflation. Yeah, ok…
However, given the recent bond bear market, nowadays the tide has turned to the point where anyone suggesting we might see a bounce in bonds is equally chastised for not fully grasping the atrocious fundamentals surrounding the US debt market.
Here is a great chart I lifted from a Bloomberg article titled “Corporate Bonds Sink Fast in One of Worst Tumbles Since 2000 by Cecile Gutscher that shows the rolling 100-day return of the JPMorgan bond index.
Funny how prices make opinions and not the other way round.
Continue reading No Nuance in the Bond Market
By Kevin Muir
This afternoon some big shooter put on a monster U.S. steepening / German flattening bond trade. The specifics of the trade were;
- buy 100,174 US five-year treasury futures
- sell 63,887 US ten-year treasury futures
- sell 65,362 German bobl futures (5-year)
- buy 29,145 German bund futures (10-year)
I did get a few pings asking if I was busy writing some tickets, but alas, the ‘Tourist’s positions have a lot less digits. According to Bloomberg, this position has $4.7 million of DV01 risk (dollar-value per basis point). That’s way above my pay grade, but it’s worth thinking about the rationale behind this whale’s trade.
Let’s break the trade into two parts. The first is the US side. The trader bought the five-year US treasury future and sold the ten-year US treasury future. This half of the trade will profit if the U.S. treasury yield curve steepens between the 5 and 10 year portion of the curve.
Continue reading Shooter McGavin, Bond Trader Extraordinaire
Yields are up, bonds down again pre-US open, per Investing.com’s graphic…
This goes in line with inflationary signaling on the macro. Yesterday was an impulsive one for the ‘inflation trade’ (IT). Since the previous intermediate trend had been up before the recent consolidation in yields (bounce in bonds as fear struck the macro) continued strength from here would indicate a resumption of that rising trend in long-term yields. Here are daily, weekly and monthly views of the all-important 10yr & 30yr US Treasury yield.
Continue reading Yields, Inflation Trade and the Ongoing Boom
By Callum Thomas
Since the September low point last year US 10-Year bond yields have risen 90bps, this compares to 125bps from the low point in July 2016 through to March 2017, or if you count it as one big move they’ve gone up 158bps. What ever way you put it the move in bonds has been substantial, so a logical question to ask is “have bond yields gone too far too fast?”
I talked about the tactical outlook bond yields a couple of weeks ago in the Weekly Macro Themes report, and a key chart from that was the one below – bond market sentiment.
The chart shows our composite treasuries sentiment index. The index derives signals from bond market implied volatility, bond fund flows, speculative futures positioning, and sovereign bond market breadth. The combined signal has provided some truly insightful leads on the market, particularly when it reaches an extreme. I have lined it up with the US 10 year bond yield to give an intuitive display of the swings in investor sentiment.
When it comes to sentiment indicators and incorporating them into a broader process, my view is that sentiment indicators typically contain ‘momentum information’ through the range, and ‘contrarian information’ at extremes. Thus I would say at this point we are swiftly transitioning from momentum to contrarian information, and the risk of a stabilization or pullback in yields is elevated at this point.
My medium term view remains that bond yields go higher. This view is informed by bond valuations still being at expensive levels, a positive growth/inflation outlook (strong cyclical picture), and a turning of the tides in monetary policy (specifically, with quantitative easing being gradually phased out globally and the Fed starting QT). Short-term, seasonality is also consistent with higher bond yields (through until about May-June).
So if I had to guess, I would say there is a decent risk of a short-term pull back in bond yields (i.e. rebound in bond prices), but that this will be a brief interlude as the medium-term trend will likely resume shortly thereafter.