Bet against US Treasury bills Bond bears left in cold sweat

Investors betting against the United States Treasury bonds — or those hiding in cash waiting for lower prices — have just been through a tough week, even after strong economic data showed that the U.S. recovery from the pandemic is evaporating.

The debate over the long-term outlook for the $ 21 trillion market for treasuries is far from over. The bearish view dominated 2021, but it was a blow as the Treasuries posted their biggest weekly rally since August. And some strategists are prone to short-term exploitation to a lower level of yield.

Last Thursday the ten-year yield fell above 1.5%, the spectrum of a 2% breach rose a few weeks earlier. The bond rally picked up speed as evidence of strong international demand prompted some investors to exit the small bet, a move that seemed to defy logic as it came amid strong US economic data.

Without big data releases next week, U.S. Federal Reserve officials were confused ahead of their April 28 decision, and with a variety of geopolitical tensions looming, there doesn’t seem to be much help for the bears. Furthermore, the fate of the next U.S. spending plan — which may include a tax component — is unclear, and the reopening was successful as regulators paused Johnson & Johnson’s Kovid vaccine roll-out.

Chris Ahrens, strategist at Stifel Nicholas & Co., said, “Low yields, or higher pickups are no longer a pain business.” Most financial institutions are being washed away with too much cash and are holding high yields — low prices — to get back into the treasury market. Now they have to buy the treasuries at high prices. “

After the worst quarter since 1980, the Treasuries market gained 1% this month, taking its 2021 loss to about 3.3%, as of April 15, according to Bloomberg Barclays Index data.

The ten-year note yields 1.58%, down 20 basis points over a year from the end of March. Hedge funds have been selling treasuries heavily since early January. As stocks rise late, retail buyers are also biased on bonds, pouring more cash into equity funds. The bullish tone has now emerged in some segments of the market as demand for options that target 5-year Treasury yields to be less than 0.55% above their May deadline and 5-year Treasury yields to sink a 30-year bond yield. From 2.1%. Those maturities give 0.83% and 2.26% respectively.

Treasury yields could prolong their decline, taking 10-year yields to less than 1.2% — a level not seen since February, said Tom Mersey, a former Merrill Lynch trader. Sevens Report Newsletter. “The market is now ignoring good financial data, so yields are going to move higher again, a slight turnaround from the pop or the Fed’s surprise surprise,” Essay said by telephone. I have not seen any of these things in a very short time. In the long run, I still think yields are high — but we are in this weird situation right now, where the Fed must say they are not changing their opinion on the data anyway. “

Federal Reserve Chairman Jerome Powell said although the economy appears to have turned a corner, central bankers are in no hurry to remove monetary aid. BlackRock Inc., the world’s largest asset manager, expects the Fed to communicate plans to cut its bond purchases in June.

The Treasury Bill bears may offer some consolation in the views expressed at the end of the week, which again suggests that the Treasuries need less time. Mark Cabana, strategic head of US interest rates at Bank of America Corp. Bloomberg TV On Friday he said he was encouraging clients to use the “low rate rally” to reset smaller positions. The median estimate in the Bloomberg survey is to end the 10-year yield year at 1.86%.

This is what the American financial calendar is all about. Expect data on MBA mortgage applications on April 21 and the next day, the Chicago Fed National Activity Index, unemployment claims, longer consumer comfort, existing home sales and Kansas City Fed manufacturing activity. On April 23, the market’s buying managers set indicators and new home sales for the US. Then, there is the Fed’s auction calendar, with 13-, 26-week bills on April 19, 52-week bills on April 20, 20-year resumption on April 21 and 4- and 8-week bills and a 5-year treasury inflation-protected one day later Securities.

(Liz Capo McCormick Senior Reporter at Bloomberg News, Global Fixed Income and Foreign Exchange)

Edward Bowling Brock and Lu Wang contributed to this column.© Bloomberg

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