David Sneddon, global head of the church of technical analysis, Credit Suisse, is out with some news this morning. The secular downtrend in yields is officially over. As such, expect the US 10yr to jimmy-rig higher from the present 2.85% to 3-3.05%.
Additionally, should yields break higher from these seemingly magical levels, well then, you should prepare yourselves for a most dire and grim bond bear market — one sporting real yields of the frightening varietal.
In recent weeks, markets have responded unkindly to spiking bonds yields. The rationale, of course, is higher growth begets higher yields — dictated by market forces, buoyed by the Federal Reserve. However, according to the Fed’s mandate, yields should only be going higher if inflation is a risk to the economy. By all measures, the CPI is anything but hot — thereby ruining any intellectual debate for higher rates or higher inflation.
Ergo, this move higher in yields, although relevant and powerful, is a farce.
Personally, I am short bonds 3x, as more of a black swan trade. I do not believe yields should spike, but I believe they might — as a mode to apply pressure on markets. This is yet another pain trade taking place. Let’s see if it unfolds or not.
FED'S MESTER SAYS HAS SEEN SOME WELCOMED PICKUP IN INFLATION
she did not expense dinner?
— zerohedge (@zerohedge) February 13, 2018
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Fund managers have sliced their bond allocations to the lowest level in 20 years as fears grow that the sector poses the biggest threat to markets.
Along with reducing their fixed income exposure, 60 percent of professional investors also say inflation and troubles overall in the bond market pose the biggest threat of a “cross-asset crash,” according to the February Bank of America Merrill Lynch Fund Manager Survey.
Respondents say they’ve reduced their bond portfolios to a net 69 percent underweight, the lowest since the survey began two decades ago. The survey polled 196 panelists with $575 billion in assets under management.