FAST FIVE: The "Momentum" Unwind And Treasury Puke Is Over: Here's What Happens Next
The “Momentum” Unwind And Treasury Puke Is Over: Here's What Happens Next Over the weekend, just as the sellside penguins were piling into the latest momentum (or rather anti-momentum) trade, predicting that 10Y yields were on their way to soar above 2%, with JPM's Marko Kolanovic amusingly stating that rates can jump 150bps before they impact stocks, and meanwhile urging clients to buy value and dump momentum stocks as a “once in a decade trade”, and Bank of America dramatically revising its 10Y yield forecast from one extreme to another, now expecting 2.00% on Dec.
The value/momentum reversal is over, buy TSYs: “the case can be made that the three decade long bull run in 30 Year Treasuries has run its course to the end.” – Gartman – zerohedge (@zerohedge) November 12, 2019 So fast forward to today when after reaching just shy of 2.00%, the 10Y is back to 1.87%, suddenly Wall Street's penguin brigade has undergone yet another U-turn, and this morning none other than Goldman took the other side to the JPM trade, stating that “a major portion of the bond market selloff is behind us.” Then, earlier today, picking up on the latest contrarian reversal – and anti-Gartman vibe – was Nomura's Charlie McElligott who echoed what we said on Saturday, writing that “the Treasury selloff feels “tactically tired,” with positioning now well-cleansed (massive duration sale from leveraged funds in the last reporting period, plus short-term CTA model now-having established their “short” TY and ED$ positions with no proximate next “sell trigger” levels).” And since we showed previously that 10Y yields, momentum, and value is just one big trade.
All one trade (and anti-beta has a high beta to 10Y) pic.twitter.com/1NohUu19wB – zerohedge (@zerohedge) November 11, 2019 .
One key reason why the Nomura quant is turning bullish on rates is that as he points out, according to the latest COT data, Hedge Funds have very much “pressed” this selloff move in US Rates, as hedge funds sold a net record $32 million/DV 01 the week prior to the breakout from the high end of the UST yield range-the single largest absolute duration change in either direction since the UXY contract was introduced in 2016 (h/t Ryan Plantz).
In short, we are nearing a market tipping point where the slightest catalyst could sell off an avalanche of selling, especially with markets once again priced to perfection, yet as Trump's speech at the NY Economic Club has made the crowd who was saying that the potential Dec signing of a “Phase 1” deal as a shortable event in Equities (“sell the news”) further incentivized to take profits sooner-than-later, as that unwillingness to back-down on tariffs (and thus backing-away on a “hard date” on a signing) makes it now look like “the easy money” has been made and risk is to downside with trade news / rhetoric.