Halister News

(Bloomberg) -- “Overbought momentum has been worked off this week, leaving much less of a technical/overdone sentiment to drive a selloff,” which means “the influence of the pain-trade has diminished,” and market “is once again forced to trade off the influences from external markets and asset classes for the time being,” CRT strategist David Ader says in note.

• Biggest primary dealer net long since Oct. 2013 in week ended Feb. 10 is “notable” as it “predates the recent selloff and settlement of the refunding auctions –- so it’s not a supply redistribution issue per se,” and “reported in market value, not par value terms so in a significant rally comparable to what we’ve seen in Jan/Feb, the dealer holdings would gain regardless of active buying”
• “Supply considerations have been a meaningful intraday influence, particularly Tuesday’s heavy corporate issuance calendar,” and today holds “some potential to see an upward bias on yields as rate-lock selling for next week’s deals is executed, although these needs will at least initially be overshadowed by the influence of the inflation data”
• Other observations from strategist morning notes:
• BMO (Aaron Kohli): CPI “is one of the more significant indicators for us and for the Fed,” and a strong result “is needed to keep the Fed’s reasoning behind their December hike intact”
  • Although “this would also put them in the difficult spot of reconciling low rates and financial stability risks with the progress towards their dual mandate,” and “should we see a significant weakening today, it could make it harder for the Fed to maintain that the December hike was warranted”
• FTN (Jim Vogel): “Bond supply has been rising for four years,” and “if you sold short, there would always be more bonds to buy later. That’s still true to an extent, but selling Treasuries and other sectors when better corporate bond issuance could falter for another month carries more risk”
  • “It’s imprecise but correct to observe total ‘rates’ forward supply in the new issue market is down more than 40%,” and “thanks to global quantitative easing, also fair to conclude overall demand for bonds isn’t falling, at a minimum”
• RBS (John Briggs): “It is interesting, but not really surprising, that the market will probably ignore the data, given the fact the Fed has made it clear they prefer to target the PCE deflator, the fact that market based inflation expectations are still falling, and even survey measures are now weakening”