Halister News

(Bloomberg) -- Some analysts see potential for short-term gains in U.S Treasuries based on domestic economic data trends, language in FOMC statement, short positioning and global reach for yield; others view domestic economic fundamentals and global technical trends as unfavorable, with potential for front-end yields to rise into FOMC meeting.

• Barclays (Rajiv Setia)
  • Recommends going long UST 10Y as current yield levels “are not consistent with the underlying trend in the data and duration positioning has likely exacerbated the selloff”
  • U.S. economy “does not seem to be accelerating,” rather “seems to be converging to the rest of the world”
  • Duration positioning of major bond mutual funds at beginning of month was near high end of its range over past year; now it’s slightly shorter than average, “argues against a further large selloff”
  • Also, “there’s a limit to how much term premia can rise, given subdued interest rate volatility” and fading risks of ECB tapering and Trump victory in U.S. presidential race

• BofAML (Paul Ciana)
  • U.S., U.K. and German 10Y yields and JGB 30Y yield “all have technical bottom patterns in place” and “want to go higher”; MORE

• Citigroup (Ruslan Bikbov)
  • Approach FOMC meeting with long-duration bias because of “high perceived likelihood of a December hike,” rise in labor force participation rate and stronger USD
  • Market unlikely to price in more hawkish expectations amid election uncertainty, and Fed, if satisfied with market-implied odds, “may choose to keep the language unchanged”
  • Further increases in labor force participation would boost breakeven level for payrolls (required to keep unemployment rate steady)
  • Additional USD gains appear likely, with “negative effects on growth and inflation”

• JPMorgan (Jay Barry)
  • Recommends adding to “trades that behave like short- duration positions, but offer more attractive relative value and less punitive negative carry,” e.g. 50:50- weighted belly-cheapening 2s7s10s butterfly
  • Risks “all point to further upside” for UST yields over medium term, however “near-term technicals and valuations” are challenging
  • Bearish factors include hesitancy of BOJ and ECB to “wade further into NIRP or extend QE,” USD strength that weakens foreign official demand, and improving domestic fundamentals
  • Bullish offsets include positions, which “have swung sharply and are now short,” and market “pricing in 70% odds of rate hike by year-end

• Nomura (George Goncalves)
  • Past week’s global rate selloff ‘‘seems much less justified by fundamental forces’’ than the increases during September driven by ‘‘BOJ steepening goals, ECB tapering concerns and discussions around fiscal stimulus”
  • Global duration grab that picked up early this year and extended after Brexit “could potentially fuel a third round of selling as real money either looks to liquidate or hedge

• Soc Gen (Subadra Rajappa)
  • Front-end yields should rise further and curve should flatten into Dec. 14 FOMC meeting, assuming outcome of presidential election isn’t a surprise; MORE

• TD (Priya Misra)
  • Looking to re-set UST 10Y long as ‘‘the global reach for yield is still far from over”
  • Selloff in global rates has been led by gilts and bunds, “not by a considerable re-pricing” of December Fed rate hike odds which remain near 70%; MORE