HALISTER1: U.S. Rates Market ‘Still Uncomfortably Long Duration,’ BofA Says

U.S. Rates Market ‘Still Uncomfortably Long Duration,’ BofA Says

(Bloomberg) -- Whether positioning is short enough “could get tested” in coming weeks if 4Q data is better than expected, BofA strategists Shyam Rajan and Carol Zhang say in note.
  • There are 3 main indications that “the market is still uncomfortably long duration or at the very least not short enough”
    • While Dec. price action was poor, real-money buying was strong as measured by Fed custody holdings and asset manager positioning in 10Y futures
    • Payer skew “remains bid” across tails and expiries, indicative of market “that is core long duration and craving protection in option space to protect its core position”
    • Investor positioning as measured by SMR Money Manager Survey “remains steadfast neutral to slightly long,” in contrast to during the 2013 taper-tantrum selloff, when it “shifted sharply to a short-duration stance”
  • BofA’s preferred short bias trades are to be short real rates or belly of nominal curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Carol Zhang (Bank of America Corp)
Shyam Rajan (Bank of America Corp)

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