Menu Close

Is the treasury market oversold? Sober Look

This is a syndicated repost published with the permission of Sober Look. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

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: Investing.com)

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

Source: Investing.com

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.

SoberLook.com

From our sponsor:

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RSS
Follow by Email
LinkedIn
Share

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading