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Is the treasury market oversold? Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

When it comes to treasuries, there is no shortage of bearish news. The budget deal is done, the third quarter GDP was better than expected (inventory build issue aside), and the US labor markets are supposedly getting better. Expectations of an “early taper” are running high, with the Fed poised to pull the trigger on cutting back securities purchases sooner than was originally thought. Moreover, bond funds outflows continue, with many investors dumping anything that has a fixed coupon. And if the fundamentals aren’t bad enough, technicals for treasuries look terrible as well. Moving averages and other technical indicators are all screaming “sell”.

Based on daily trend (source:

That’s precisely what many investors have been doing since October, as treasuries resumed the decline which began last spring.


Now consider the following chart. It shows the aggregate speculate investor positioning in dollar rate-sensitive futures. The measure is duration weighted, assigning a higher weight to the 10y note futures than to bill futures for example.

Source: Credit Suisse

This tells us that “speculative” investors are building up what amounts to a large (relative to recent history) short treasuries position. And why not – so far all signs have pointed to this being the right trade. Until some of these trigger-happy traders begin to cover.

With all the bearish news out and everyone – including retail investors – talking about rising rates, the contrarian view would put the near-term risk in treasuries to the upside.

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Skating on Thin Ice, Keep Life Preservers Handy

We may be skating on very thin ice here, but the weight of the evidence still supports a weak bull case for the near to intermediate term. So I’m adding buy picks on the chart pick list and adjusting trailing stops to account for the risk.

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These reports are not investment advice. They are for informational purposes, for a broad audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

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