UST MORNING CALL: ‘Sell the Market’ Amid Overbought Momentum
(Bloomberg) -- “With the Chairwoman’s testimony out of the way and the market now contemplating the ‘notion’ of negative interest rates –- if not the actual potential for the Fed to make such a move –- Treasuries are left to continue responding to overseas volatility and refining growth expectations,” CRT strategist Ian Lyngen says in note.
- “We want to sell the market from both a fundamental and technical perspective. First, the market has moved sharply in a short period of time and stretched overbought momentum measures that were already very overdone”
- “Second, the prices appear to have changed more than the facts –- particularly in the long-end of the curve, but also arguably in stocks and oil –- what ‘news’ was really out? Third, Yellen’s comments were interpreted as dovish, moreso than anticipated, but her overall stance continues to point to the Fed’s objective of tightening policy at a gradual pace”
- Other observations from strategist morning notes:
- BMO (Aaron Kohli): “10s30s curve is approaching resistance levels near 86bp after steepening in a discernible trend channel year-to-date,” and “momentum indicators are hovering near overbought territory and we expect some technically driven flattening to be likely over the near- term, with a target near 80bp”
- FTN (Jim Vogel): Yday “bonds started anticipating more bad news as Europe’s market struggles compounded themselves”; however “it wasn’t a sign of the end times, but it brought back bad memories of the EU credit crisis that was supposed to be over more than 2 years ago”
- “It’s a realistic, short-term response to a brutal week,” and should not “be interpreted as another sign financial markets ‘believe’ a recession is coming”
- “Traders are agnostics in a foxhole, suspending faith in economic growth or recession until data shine light on 2016 fundamentals”
- RBS (John Briggs): “There is danger in over-reacting to volatility, which has been extreme, throwing in the towel just as the market is about to turn”
- “However, there is also equal danger in holding too firmly to a viewpoint that is increasingly called into doubt by a dispassionate assessment of new information,” and “perhaps it is too easy or too late to say that after seeing the 5yr move 85bps over the course of 29 trading sessions from the end of 2015 through yesterday, on an intraday peak-to-trough basis”
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Aaron Kohli (Bank of Montreal)
Ian Lyngen (CRT Capital Group LLC)
Jim Vogel (Ftn Financial)
John Briggs (RBS Securities Inc)
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