Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 2pm.
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereWhere are bond yields going with risk of a euro breakup on the rise? Click here (above) for our latest report.
One VERY Crowded Trade
As President-Elect Trump becomes President, bonds have given up their 2017 gains recent days. The question is, whats driving the move?
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereTo get our latest report on where bond yields are headed, click on the lick above.
As yields have headed higher over the past few days, much as been blamed on Fed Chair Janet Yellen’s more hawkish tone and growth excitement with regard to the President elect. We think there is another element that is very involved in the yields move, this weeks survey results. “Survey” is the key word, not based on economic data but on survey’s of business sentiment.
We look at the Philadelphia Fed Manufacturing Index as an input into our ISM (Institute of Supply Management) model. Not only is the headline correlation strong, more so than other regional survey points, but also the sub indexes have a strong statistical relationship. The headline number continued its post election strength to 23.6, highest level of the year. Sub indexes such as new orders and employment indices moved decisively into growth mode.
Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 2pm.
Don’t miss our next trade idea. Get on the Bear Traps Report Today, click hereWhere are bond yields going with risk of a euro breakup on the rise? Click here (above) for our latest report.
Philly Fed vs U.S. 10 Year Bond Yield
The index also has a pretty strong correlation with 10 year U.S. treasury yields. We believe, there was a specific section that the market was taken a back by, the “prices received” section. This showed that companies expected to be able to pass on any increase in prices to the consumer, an inflationary sign. This puts a lot pressure on bond prices, has created an opportunity. We’ve rarely seen a trade this crowded, sentiment so one sided.
The most important figure in the Philly Fed report, with regard to the market, was “Prices Received”, which also made a new high. This suggests that businesses are starting to pass on higher costs to their customers. The bond market was repricing this, especially at the longer end. We still believe much of this is sentiment driven, but it is worth paying close attention to in coming months.
However, as positioning is so one sided in bonds, much of this inflationary acceleration is priced in.
CFTC 10 yr Treasury Positions, Even Your Grandmother is Short Bonds
To get our latest report on where bond yields are headed, click on the lick above.
