28 Jun 2013
Flash: Investors positioned defensively for higher rates – RBS
FXstreet.com (New York) - There are widespread signs that investors are now defensively positioned for higher rates, notes the RBS Research Team.
Medium-term momentum signals are deeply oversold for US rates, trader sentiment is exceptionally bearish on bonds (just 8% bulls for US bond futures), net longs in the JPM survey had their biggest plunge in 2yrs and Put/Call ratios are also at extremes (puts over calls in FV, TY and US futures) not seen since February 2011 when 10's pressed up toward 3.75%-- just before a massive rally.
Given all this, the skew of risk in rates now tilts heavily toward lower rates as we appear to be running out of sellers. “A bullish turn in weekly momentum studies will confirm that a bullish correction to lower rates has begun and with daily momentum work crossing bullishly yet, it may be a matter of days before the weekly studies turn in favor of higher prices. Cover shorts, be long 2yr notes (stop on a daily close above 0.43% maybe?) and get ready to extend into the belly on dips.” the team adds.
Medium-term momentum signals are deeply oversold for US rates, trader sentiment is exceptionally bearish on bonds (just 8% bulls for US bond futures), net longs in the JPM survey had their biggest plunge in 2yrs and Put/Call ratios are also at extremes (puts over calls in FV, TY and US futures) not seen since February 2011 when 10's pressed up toward 3.75%-- just before a massive rally.
Given all this, the skew of risk in rates now tilts heavily toward lower rates as we appear to be running out of sellers. “A bullish turn in weekly momentum studies will confirm that a bullish correction to lower rates has begun and with daily momentum work crossing bullishly yet, it may be a matter of days before the weekly studies turn in favor of higher prices. Cover shorts, be long 2yr notes (stop on a daily close above 0.43% maybe?) and get ready to extend into the belly on dips.” the team adds.