HALISTER1: UST MORNING CALL: ‘Markets Can Stay in Overbought Conditions’

UST MORNING CALL: ‘Markets Can Stay in Overbought Conditions’

(Bloomberg) -- “The severity of the recent moves have extended oversold conditions in stocks and overbought condition in Treasuries, creating a dynamic which points to the need for a meaningful correction,” CRT strategist David Ader says in note.
  • “That said, as we’ve seen, the markets can stay in over- bought/sold conditions for a while before any significant reversal”
  • “Our conviction has undoubtedly waned on the need for any back-up in rates ahead of the 10- and 30-year auctions, if for no other reason than if we’re heading into another European credit crisis,” then “Treasury market’s supply and demand balance becomes far less relevant’
  • Other observations from strategist morning notes:
  • BMO (Aaron Kohli): “Critical question for investors is whether the markets are signaling something about the economic picture that has yet to be picked up by street economists or if the market’s price action indicates positioning and the fear of further declines”
    • “We are still of the view that the positive improvements in core inflation, in combination with reasonable domestic economic data, will keep the Fed from writing off rate hikes as the market has,” and “expect this even as volatility and tighter financial conditions will keep them on pause for the time being”
  • Marty Mitchell (independent): “Because of the numerous and increasing bond friendly factors at play globally, we see no reason to alter the view that buying on dips down to support is the most prudent strategy”
    • “While it may seem difficult at times, remain patient for a correction to the 10-day moving averages before adding to long exposures”
  • FTN (Jim Vogel): “As for other messaging from the Fed Chair, current volatility might make her more reluctant to signal any changes in policy for fear of creating additional volatility when/if her comments are blown out of proportion,” and “her biggest risk” is “coming across too blasé about present challenges,” while “investors are very very tired of the word ‘headwinds’ from the Fed”
  • RBS (John Briggs): “Fed chair is unlikely to tread new ground in semiannual Congressional testimony,” and “to the extent that Yellen is passively hawkish by simply reiterating the bulk of the January statement message at least in the prepared remarks, there is some room for a modest move higher in yields”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aaron Kohli (Bank of Montreal)
David Ader (CRT Capital Group LLC)
Jim Vogel (Ftn Financial)
John Briggs (RBS Securities Inc)
Marty Mitchell (The Mitchell Market Report LLC)

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