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BofAML Bullish Bonds & Black Gold

Tyler Durden's picture




 

The US 30-Year Treasury bond yield remains on track for new all-time lows in the weeks ahead, according to BofAML's MacNeil Curry, on the basis that crude oil prices will begin to stabilize. With the WTI curve at extreme contango, Curry suggests the downtrend is finished, and this is a very high probability location for a base to develop.

 

2 bullish developments for oil

For the week ahead our attention is on the oil market. Specifically, WTI futures are fast approaching 16yr trendline support which halted the decline of 2008/2009. Furthermore, the slope of the WTI curve (the 1m-12m futures contract spread) is now at bearish extremes from which price lows have often coincided. While it is too early to say that the downtrend is over, both of these indicators say that it’s time to start looking for signs of basing. Such a development should be positive for risk assets and many EM currencies (watch MXN & BRL, both have completed Bullish Outside Week patterns vs the $). Finally, stabilizing energy prices should have little if any follow through to the back end of the US Treasury curve. 30yr yields remain are on track to make new all-time lows in the weeks ahead.

Chart of the week: Oil contango reaches bearish extremes

The 1m-12m WTI spread (CL1-CL12) moved into contango back in early November.

Now that contango has reached bearish extremes from which price has often found a base. With the exception of 2008/2009, when the front month future contract trades at a $7.50 discount to the 1yr contract, it has often coincided with a market low or the start of a larger basing process.

WTI nears long term trendline support

With the WTI curve at extreme contango, our attention is drawn to the fast approaching 16yr trendline between 46.13/45.22. While there is not yet enough evidence to say that the downtrend is finished, this is a very high probable location for a base to develop. Watch it closely.

Stay bullish the long end of the US Treasury curve

Stabilization in energy prices should have little effect on the long end of the US Treasury curve. 30yr yields remain in a well-defined downtrend, with Friday’s Bullish Outside Bar indicating that the downtrend is resuming. Initial targets are seen to 2.462%, one year channel resistance, through which targets 2.261% and potentially below. Bears need a break above 2.660%/2.671% to gain control.

 

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Sun, 01/11/2015 - 18:37 | 5649395 db51
db51's picture

Buy Motherfuckers!   The Jig is Up!

Sun, 01/11/2015 - 18:46 | 5649417 MalteseFalcon
MalteseFalcon's picture

Bonds = correct
Oil = Dead wrong.

Sun, 01/11/2015 - 19:18 | 5649499 FlacoGee
FlacoGee's picture

In re:  "Oil = Dead Wrong".

It all depends on the dollar and rig count.

There are a number of oil royalty trusts that are looking very attractive at this point.  Trusts with no (or minimal) shale exposure.

We will have a lot more clarity on the oil situation at the end of March.    Seeing 1st quarter results for the shale players, the Russians, the Canadians, etc. will allow all of us to see how quickly the bankruptcies, staff reductions, and rig reductions will hit.

 

 

 

Sun, 01/11/2015 - 19:36 | 5649560 Pool Shark
Pool Shark's picture

 

 

I'm familiar with "Yellow Gold" and "White Gold," but what is this "Black Gold" you speak of.

It couldn't possibly be "Oil" because that's currently trading down $0.66 at $47.70.

Maybe when BoAML says they're bullish "Black Gold" they really mean some other commodity...

 

Sun, 01/11/2015 - 19:59 | 5649638 SameAsItEverWas
SameAsItEverWas's picture

what is this "Black Gold" you speak of

see Beverly Hillbillies

Sun, 01/11/2015 - 20:00 | 5649656 Pool Shark
Pool Shark's picture

 

 

What? Did I forget the /sarc tag?

 

Mon, 01/12/2015 - 09:14 | 5650834 wallstreetapost...
wallstreetaposteriori's picture

Globalization is dead.  Oil is going to 10.  Gold is going back to 2K.  Stocks are going to infinity......?

Sun, 01/11/2015 - 19:53 | 5649618 Pareto
Pareto's picture

Its more than just dollar and rig count.  its a demand problem (structural), not an excess supply problem.

 

(demand problem = shift in the demand curve - not movement along it, as you would suggest.)

Sun, 01/11/2015 - 20:04 | 5649666 rccalhoun
rccalhoun's picture

expect the least expected

Mon, 01/12/2015 - 02:06 | 5650488 Carpenter1
Carpenter1's picture

He said it himself about oil:

"Except in 2008.."

 

Right, we're going there again, but the stops are pulled and we have no brakes this time. FED will be audited, oil will crash further, the US will have its panic after everything has already crashed, not before. 

 

This is going to be very, very ugly.

Mon, 01/12/2015 - 09:24 | 5650849 NoVa
NoVa's picture

IF the 10 yr closes below 190, then we will see 160 in yield.  

a close below 242 on the 30 yr will break through to 220 in yield.

 

NoVa

 

Sun, 01/11/2015 - 18:36 | 5649398 franciscopendergrass
franciscopendergrass's picture

the saudis say FUCK YOU to your trendline on the crude chart.

Sun, 01/11/2015 - 18:46 | 5649413 blabam
blabam's picture

Drawn red lines don't mean what they used to.

Sun, 01/11/2015 - 19:17 | 5649494 saveUSsavers
saveUSsavers's picture

This ARSEWHOLE JACKARSE FORGOT THE DERIVATIVES tied to crude. GO F YOURSELF!

Sun, 01/11/2015 - 21:16 | 5649886 Tyranny is Love
Tyranny is Love's picture

I was wondering what happens to global demand for the US$/US treasury bonds now that oil is less than half its price (and some countries are now selling in non dollar currencies).

If demand for oil is maxed out and there is no growth due to peak debt saturation, sales of oil and thus demand for the dollar should drop, at least for the purpose of buying oil.

Does this mean that all the money that was off shore and being used fto buy oil returns to the US?

Lastly how much of a problem would that be for the value of the Dollar/FRN?

 

 

Sun, 01/11/2015 - 18:42 | 5649403 NoWayJose
NoWayJose's picture

Kinda flies in the face of the 'crowded trade' stories for shorting treasuries

Sun, 01/11/2015 - 18:51 | 5649430 disabledvet
disabledvet's picture

And the history of oil too.

I simply fail to see the connection. "Trillions in oil debt heading south now okay equals buy treasuries."

?

My view is WIDESPREAD PANIC.

Sun, 01/11/2015 - 20:18 | 5649717 sun tzu
sun tzu's picture

Panic means a flight to saftey. However, the Fed will step in and buy equities if they have to in order to stop any bear market. 

Sun, 01/11/2015 - 19:02 | 5649428 ebworthen
ebworthen's picture

Great, more expensive gas and a FED determined to pay savers nothing while continuing to backstop the banks and corporations.

Sounds like the past six years all over again.

p.s. - There is no recovery.

Mon, 01/12/2015 - 02:08 | 5650490 Carpenter1
Carpenter1's picture

Just like technical indicators haven't meant shit on the way up, they won't mean shit on the way down either.

Sun, 01/11/2015 - 18:53 | 5649429 papaswamp
papaswamp's picture

Usually best option is to do the exact opposite. Though when oil whacks the support line a recession comes into play...

Sun, 01/11/2015 - 18:54 | 5649435 Bernoulli
Bernoulli's picture

With the WTI curve at extreme contango, our attention is drawn to the fast approaching 16yr trendline between 46.13/45.22. While there is not yet enough evidence to say that the downtrend is finished, this is a very high probable location for a base to develop. Watch it closely.

Watch it closely?? Come on people, PLEASE!!! WTF!!! You are seriously drawing a line through the price points of WTI of December '98, November '01 and December '08 and making predictions on what will happen over the next weeks?? Like the price will find "support" on such a theoretical line? Like these dates are miraculously all connected? Or because enough people believe in chart analysis in the world that they will just stop selling and start buying at this point?

I hope I am not the only one thinking to myself that this a bit ridiculous.

No wonder everything in the financial world is so fucked up...

PS to MacNeil Curry: Could you please draw me the upper boundary somewhere through the July 2008 high, you can chose which other data points to pick. Then I can better plan for the WTI rebound. Thank you. Oh and you are probably saying oil prices will then not rise higher than 850 USD/barrel in 2016??


Sun, 01/11/2015 - 19:05 | 5649458 magnetosphere
magnetosphere's picture

they need to find suckers to take the opposite side of their trades

Sun, 01/11/2015 - 19:14 | 5649487 MarketAnarchist
MarketAnarchist's picture

Superb Comment, Bernoulli.  

Sun, 01/11/2015 - 20:58 | 5649825 MATA HAIRY
MATA HAIRY's picture

LOL...but ZH and its brethren sites do that all the time, though...

 

Sun, 01/11/2015 - 22:46 | 5650087 chairman of the...
chairman of the bored's picture

See Charles Nenner,cycle analyst,on Kitco.He is seldom wrong.Called the bottom in oil around Dec. 17...pretty fuckin close...Made some gold  and dollar calls also.....better listen,he's real good.Sorry,don't have the link...takes a little searching,but worth it..

Mon, 01/12/2015 - 02:10 | 5650498 Carpenter1
Carpenter1's picture

Oil has fallen since then, and Nenner has been calling for a market crash for years.

You oil bulls are either worried about your jobs or don't understand what's going on in the real economy, or both.

 

Sun, 01/11/2015 - 19:02 | 5649453 FreedomGuy
FreedomGuy's picture

In an economy different forces are always rebalancing. They are rebalancing every day through billions of economic decisions each day.

When governments and central planners (Fed, bankers, and regulators) prevent the rebalancing by favoring one side of an economic trade they build up powerful forces that don't balance, but break. This is the essence of a bubble. Pressure builds up until there is sudden catastrophic failure.

I have never been a doomsdayer for most of my life but governments have taken unprecedented control of economies and prevented all rebalancing.

I do not know how this breaks but I supect it will be violent, sudden and unexpected.

Sun, 01/11/2015 - 19:32 | 5649548 disabledvet
disabledvet's picture

East Texas, 1930.

 

"Redline that one." 

 

I mean seriously..."the world runs on expensive oil so therefore the oil will become more expensive" is not a good strategy in my view.

 

Weather will get real cold here soon....and then its back into the forties.

 

Oil to ten bucks a barrel, natural gas to under a dollar.  Coal is the most valuable energy product in the solar system...it is only found on earth and it is ridiculously cheap right now.

 

I would not be surprised if Russia and China go to war either.

Sun, 01/11/2015 - 20:42 | 5649790 TungstenBars
TungstenBars's picture

"Russia and China go to war either"

 

against the Cabal? 

Sun, 01/11/2015 - 19:19 | 5649500 buzzsaw99
buzzsaw99's picture

i barely have enough storage capacity for the oil i have now. wtf am i supposed to do with any additional oil i buy? those bankers must think i am one stupid mofo. the tanks are full bitchez.

Sun, 01/11/2015 - 19:22 | 5649519 Billy Shears
Billy Shears's picture

Calling all muppets... . BoAML first has to make two wrong calls, with reversals, before it's safe to buy.

Sun, 01/11/2015 - 21:06 | 5649847 tok1
tok1's picture

So BOAM is long buying bonds / PIMCO is bullish / Jeffrey Gundlach, at doubbleline is super bullish / Bill Gross is very  bullish, Socgen put out a piece on how bullish they are on bonds.. and so has most other Eurpoean/US banks all saying they are taking the nonconsensus view. The only one saying rates will go up at some point is asome guys on the FED board.. If everyones bullish I guess thats the consensus right.. Futs every short has a long.. The buyers are in the cash

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