10 Year Treasury
It’s not about the current Dollar & Treasury market safe haven bid, it’s about tomorrow’s confidence in our monetary system.
Maybe overzealous bond investors might want to rethink that Yield Chasing Strategy for 2015.
Olivia Newton John had it right................
The difference between 2007 and today is back then these were largely sub-prime loans and overvalued real estate mortgages, vs, today's entire global bond market bubbles from Spain and Greece to the United States.
On Tuesday, the Dow fell 272 points. No big deal, of course - we rebounded the most in 3 years yesterday. But what if it continued? Just six years ago it fell 51%. It could easily do so again – back down to, say, 8,000. There would be nothing unusual about it. 50% corrections are normal. You know what would happen, don’t you? Ever since the "Black Monday" stock market crash in 1987 it has been standard procedure for the Fed to react quickly. But what if Yellen & Co. got out the party favors... set up the booze on the counter... laid out some dishes with pretzels and olives... and nobody came? What if the stock market stayed down for 30 years, as it has in Japan?
Those of you who thought volatility was high this past week just wait until the Fed waits to the “Whites of the eyes of inflation” before raising rates.
Well, I am profitable on this latest move up in 10-year yields, and I expect yields to continue rising through the 10 and 30 year bond auctions later this week ...
Last Thursday, as bond yields were cratering and the price on the TYZ4 soaring soaring, we made an explicit cautious observation in "A Bearish Sign For Treasurys?" that the latest incarnation of the immortal muppet-slayer, Tom Stolper, manifesting himself this time as Bank of America's technician MacNeill Curry, decided to go from bearish on the 10 Year as he has been on and off since the start of the year, to bullish. We said that "with the 10Y yield plunging, BofA's chief technician, which as is widely known is another words for "momentum chaser" who has over the past year been branded as the new coming of the legendary Tom Stolper thanks to the inverse-accuracy of his calls, has changed his tune, to wit: "the trend in yield is lower." If there was something that could make us nervous about being long TSYs, this is it." And almost as if on demand, the 10 Year proceeded to tumble like a downhill rolling bag of bricks in the hours, not days, following this all too obvious top-tick. But even more amusing, moments ago the same MacNeill Curry has flip flopped yet again and in a note, has just announced that BofA has been stopped out of its "long"
It is no secret that throughout 2014 Bank of America has been actively urging its clients to join the most crowded short trade of the year, the 10 Year Treasury, which also happens to be one of the best performing asset classes year-to-date, and one which just hit 2014 highs. However, with the 10Y yield plunging, BofA's chief technician, which as is widely known is another words for "momentum chaser" who has over the past year been branded as the new coming of the legendary Tom Stolper thanks to the inverse-accuracy of his calls, has changed his tune, to wit: "the trend in yield is lower." If there was something that could make us nervous about being long TSYs, this is it.
"The consensus narrative on market developments is set to implode," warns Steen Jakobsen, Saxo Bank's chief economist and chief investment officer. In his latest note, he explains precisely how to position ahead of the storm, with everything from calls on gold to German government bonds and more importantly, and their underlying rationale. As Jakobsen concludes, "Yes, the truth is often ugly, but often liberating too. We need to move away from chasing paper profit to investing in people, ideas and prospects. We should not fear the coming sell-off, but embrace and use it for creating a true mandate for change. It’s about time."
High yield bond markets are another victim of the "new normal"
Just as the Fed started the Taper large banks began ramping up their U.S. Treasury holdings.
Cruising through earnings, it is now time to revisit certain indicators that speak to the underlying health of the economy and that of the US equity and Treasury bond market.
The "Shiller P/E" is much in the news of late, and, as ConvergEx's Nick Colas suggests, with good reason. It shows that U.S. equity valuations are pushing towards crash-worthy levels. This measure of long term earnings power to current price is currently at 25.3x, or close to 2 standard deviations away from its long run median of 15.9x. As Colas concludes, the writing is on the wall and we must all read it. Future returns are likely going to be lower. Competition for investor capital will get even tougher. That’s what the Shiller P/E says, and it is worth listening.
Are the S&P 500 and VIX right while the Russell and Treasury Rates are Dumb?