FAST FIVE: 2019's Most-Consensus Cyclical Trade Just Hit A Critical Inflection Point

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5s30s Despite near term correction risks, 5s30s remain the cyclical trade to do in 2019   Circling back after a few busy days of client meetings along with a really interesting macro dinner we hosted last week in NYC.  By far the largest takeaway is how consensus the 5s30s steepener has become.  I don't think we found a client that is remotely interested in the flattener at this point, and at risk of being dramatic; the 5s30s steepener now appears to be the most consensus trade in the US.

The oft cited reasons for the steepener include the “end of cycle” and the Fed's new “AIT” framework, both of which we have discussed enough at this point so will leave it at that.

23rd that “all things considered we should go back to a shorter duration,” the curve gained renewed strength.  Thus any pullback from this view could cause a curve correction.   4) Pension demand resurfaces – as I showed last week, pensions “waved in” bonds last year ahead of the Sept.

15 tax deadline but has since slowed those purchases (as seen in the stripping data).  Pensions will never leave the bond entirely since it lines up with their maturity profile, so there is always a risk pension demand reemerges.

If the technicals are right, that rally would likely only happen after the buyback blackout which is approaching.

Categories: ZH