- Bond market sell-off of past 2 weeks (since Obama tax cuts extension for 2 years) has damaged yield downtrend beyond near term repair.
- However, no new uptrend from monthly chart. Most likely a higher trading range for yields, 3.11% - 3.60%.
- Expecting an extended period of range trading for large positive carry instrument = best time to put on carry trade. 3.50% yield vs 0% cost of funding.
- From David Rosenberg yesterday : "The 10-year note yield is now roughly 3.5%. That is too high under current circumstances, but not too low as many Wall Street strategists suggest. At no time in the past five decades has the yield on the 10-year note been 3.5% with core inflation this low, at 0.8%, and the unemployment rate this high, at 9.8%. In past periods when the yield was at this level, core inflation was hovering closer to 1.5% and the jobless rate closer to 6.5%. Not only that, but historically, at a 3.5% yield on the 10-year note, the overnight cost of funds averaged over 1% as opposed to near-zero. Something is going to have to change here and it is most likely to be a reversal in this recent uptrend in yields." Totally agreed.
- Concern - many caught long at lower levels still and perhaps sell-off has some more to go. My gut feel is not too much more though.
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