8 Dec 2014
Friday’s heavy sell-off helped unwind overbought conditions in treasuries – RBS
FXStreet (Barcelona) - The RBS Research Team believe that the corrective phase is still not over for US treasuries in spite of Friday’s heavy sell-off which helped unwind some of the overbought conditions.
Key Quotes
“In recent days we highlighted the fact that market positioning appeared much more 'balanced' after a year where specs and levered money were quite short the market. We said that the risks for rates were theoretically more symmetric and that bond prices could now trade lower on good economic news—as we saw in lights on Friday.”
“Friday's heavy sell-off (in the front end and intermediates at least) helped to unwind some of the overbought conditions that had developed between November 7th and December 1st. That said, we see no evidence that this corrective phase is over so we stick with our 2.40% tactical target in 10yrs (or ~1.80% in 5yrs) even though very front end benchmarks (2's) are starting to look oversold right now.”
“We sense that we need to probe even higher in yields from here (especially in the back end) despite the further widening in US versus Bunds and JGB differentials. We wait for evidence all across the curve that the rate sell-off is overdone and that the skew of near-term risks has turned bullish.”
“As a guess, we'd say that magic moment for wanting buyers is a week to a week and a half away given the look of things.”
Key Quotes
“In recent days we highlighted the fact that market positioning appeared much more 'balanced' after a year where specs and levered money were quite short the market. We said that the risks for rates were theoretically more symmetric and that bond prices could now trade lower on good economic news—as we saw in lights on Friday.”
“Friday's heavy sell-off (in the front end and intermediates at least) helped to unwind some of the overbought conditions that had developed between November 7th and December 1st. That said, we see no evidence that this corrective phase is over so we stick with our 2.40% tactical target in 10yrs (or ~1.80% in 5yrs) even though very front end benchmarks (2's) are starting to look oversold right now.”
“We sense that we need to probe even higher in yields from here (especially in the back end) despite the further widening in US versus Bunds and JGB differentials. We wait for evidence all across the curve that the rate sell-off is overdone and that the skew of near-term risks has turned bullish.”
“As a guess, we'd say that magic moment for wanting buyers is a week to a week and a half away given the look of things.”