UST MORNING CALL: Latest Rates Move Has ‘More Room to Run’
(Bloomberg) -- “Our focus remains on positioning as a good barometer of when rates markets might be more receptive to a selloff,” and “latest positioning data released last week not only confirms our suspicion that shorts were not being closed out in the latest rally, but shows that the shortest part of the curve saw positioning get even shorter,” BMO strategist Aaron Kohli says in note.
- “That suggests the latest move in rates likely has a bit more room to run with only TU getting less short and TY longs being curbed, as FV shorts increased again to near- record levels”
- Other observations from strategist morning notes:
- CRT (David Ader): “It’s notable” that “the once feared specter of Chinese selling has had frankly no clear impact on Treasury yields –- in fact, the market has rallied throughout most of the associated selling” and “it’s ultimately the policy and economic outlooks that provide the most relevant influence on rates rather than simply supply and demand considerations”
- “At the very least with the shift in Fedspeak (subtle to be sure) merely affirming what the market has been saying and with an overall decent NFP report (if not a bearish one for the market) we err on the narrow-minded, myopic, and terribly glib effort for a Refunding trade this week”
- Marty Mitchell (independent): “Pain trade in here is persistently lower yields, particularly since so many interest rate forecasters still expect to see the 10yr yield finish 2016 above 2.75%”
- “Given the financial conditions, fear flows, equity swoon, and debt default concerns that have intensified globally in the first five weeks of the year and that have the 10yr yield at 1.80%, those rate estimates seem a bit aggressive to the upside”
- “At some point, by sheer time and or trajectory, the sharp downward trend in yields will end,” and “we wouldn’t even need to see an upside correction in yields to violate the upper trend lines; all it would take is a week of sideways action. For now, however, the trend is intact and the strong underlying bid has shown no sign of stalling”
- FTN (Jim Vogel): “Bond yields flirt again with their 2016 lows, partly because risk markets don’t feel comfortable with where ‘bottom’ really is”
- “Bond investors have to stick to strategies that approach their performance goals in any of 2-3 different scenarios, including the potential for rates to rise in the second quarter”
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Aaron Kohli (Bank of Montreal)
David Ader (CRT Capital Group LLC)
Jim Vogel (Ftn Financial)
Marty Mitchell (The Mitchell Market Report LLC)
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