As we discussed recently [3], the collapse in the term structure of the US Treasury bond market was/is dramatic to say the least in the last few days. While the world and their asset-gathering mainstream-media strategist 'knows' rates are going higher, BofAML's Macneil Curry warns of the term structure "don't lose sight of the bigger picture" as a break of the rising channel suggests 5s30s could drop dramatically further (and with it all hope of NIM-based levitation to financials).
Via BofAML,
US5s30s: Don’t lose sight of the bigger picture
Since October 2011, 5s30s has been locked in a well-defined rising channel, with boundaries between 252bps/195bps. In the near term, the low end of the this channel should provide significant support and likely result in a near term pause. However, taking a step back to view the bigger picture, and the 2yr range trade has the unmistakable look of a Bearish Continuation Flag.
[4]
As such one must ultimately prepare for a break of of Flag support and resumption of the long term flattening trend (which began back in Nov’10) for 146bps and eventually below.