Seasonality starts now
Before you short equities
Seasonality is about to kick in right here...
Source: Equity Clock
Before you buy protection
You missed the "easy" trade...VIX bullish seasonality is supposed to fade from here.
Source: Equity Clock
Madoff's rates perfection
Treasury futures put in the biggest up candle in a long time. The negative trend remains intact, but note we never tried the lower part of the channel this time. 21 day is the first resistance to watch. A close above it and the upper part of the channel highs comes into play. The 50 day is still way higher, but are we ready for some "painful" reversals in yields?
Source: Refinitiv
Lower for longer
JPM sees yields moving lower from here. Main bullets are:
1. Despite the rise in oil prices possibly pushing inflation, JPM believe current rising bond yields are unsustainable.
2. Historically, oil and bond yields have had a positive correlation. The recent oil price surge is mainly due to supply reasons, potentially leading to deflation.
3. Past eight Fed tightening cycles show bond yields decrease post the final hike, by an average of 100bp.
4. Current bond yields are trading above both inflation forwards and expected levels.
Source: JPM
Bond convexity
Things could get dynamic quickly...
Source: GS
Hottest costume Halloween is a Bear (steepening)
Starting in the late 70s, we scanned for days when the 2Y-10Y yield spread was: 1) negative; 2) moving higher and 3) the flattening was driven by the long end. We found just ~240 examples across nearly 12k trading days, with plenty coming from the current cycle. Shown in the table below, performance is typically pretty poor when this happens. Not only has NT performance been negative on average, but it also takes a while for the market to recover, with +12M performance averaging just 4.3%. It probably doesn’t help that these instances tend to occur closer to recessions.
Source: Jefferies
Source: Jefferies
The computer oil puke
CTAs puked oil aggressively during the sell off last week. Oil is currently frustrating everyone...
Source: BofA
Oil's volatility explosion
Oil sharply higher, oil vol up, oil sharply lower, oil vol up...The OVX has gone from 24 to 40 in a few weeks. Impressive...
Source: Refinitiv
Tighter
The tightening in US financial conditions over the past few months has been rather severe. Recall that a 25 bp tightening if financial conditions is approx to be seen as a 25 bp rate hike.
Source: GS
Diet
Usage of the 3 magic fat pills have exploded over the past 18 months.
Source: Bernstein
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