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26 Jun 2013
Flash: US rates skewed towards downside – RBS
FXstreet.com (New York) - According to the RBS Research Team, “There are increasing signs that investors are now defensively positioned for higher US rates.”
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 2-years and Put/Call ratios are also at extremes (puts over calls in FV, TY and US futures) not seen since February 2011 when 10-years 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 and a break of steeply sloped bear trendlines will confirm that a bullish correction to lower rates has begun.” the team adds. Treasury rates therefore appear to be in 'overshoot' territory. Cover shorts, be long 2-year notes (stop on a daily close above 0.43%) and get ready to extend into the belly if a new bull trend is confirmed in the charts.
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 2-years and Put/Call ratios are also at extremes (puts over calls in FV, TY and US futures) not seen since February 2011 when 10-years 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 and a break of steeply sloped bear trendlines will confirm that a bullish correction to lower rates has begun.” the team adds. Treasury rates therefore appear to be in 'overshoot' territory. Cover shorts, be long 2-year notes (stop on a daily close above 0.43%) and get ready to extend into the belly if a new bull trend is confirmed in the charts.