The theme is this: record low Schatz yields, record high stocks.
Or: the paring of bond shorts while maintaining exposure to risk via equities.
Either way, it’s a conundrum. A paradox. And it’s the most important narrative for markets this week.
Indeed, it takes on a special significance when you consider what might happen to Treasury yields if the bund bid makes the trip across the Atlantic. That is, what the f*ck happens when the (still) massive Treasury short gets covered? More here.
Below, find the latest on all of this from the incomparable Richard Breslow, who notes that while it’s a “confusing, annoying, topsy-turvy world,” you need to get over it and trade.
Via Bloomberg’s Richard Breslow
It’s not terribly surprising that people feel nervous. And not just about whether they need to decide between finding the nearest safe-haven asset or continue to chase the stock market higher. How’s that for a digital mindset? I get it. Especially as bund yields are trading like they have rocks tied around their necks, gold is glittering again and politics, everywhere, is a mess.
- But we’ve also seen a lot of markets remain steadfastly in ranges, no matter the investor mood swings. Risk-reward keeps reminding us to buy at support, and vice versa. You can get away with any view as long as you know where your stops are. Loving it or hating it isn’t a strategy. And broken clocks may be right twice a day, but aren’t of a great deal of use
- Are U.S. Treasury yields going to continue lower and crush all the speculative bond shorts? Maybe. Certainly a legitimate case can be made. But you’re betting on not only knowing what the President and Chair will say, but how markets will react
- Three times this year the 10-year has been down to these levels. Resistance remains at 2.28%. It hasn’t changed, and, so far, hasn’t broken. It was less than two weeks ago that yields topped 2.50% and we were debating how much higher they might run
- Gold does indeed look impulsive. But has run right up to the 200- and 233-day moving averages. Is this where you want to buy the break?
- I keep being told that the dollar is finished. But the index has been caught between the 21- and 55-DMAs for the last three weeks and will finish the month firmly above its 21- month moving average. That’s not a break-out, but support and resistance are easily measured, if you want to take a position
- I understand that it’s frustrating to hate the world and have to watch equities continue higher. But frankly it’s a lesson you should have learned over the last eight years. If they are going to correct, let them do something wrong first. If you can only bear to be short by picking the absolute top, it’s probably not the market for you. By the by, they can fall a good ways and still be in an uptrend
- It’s a confusing, annoying, topsy-turvy world. It has also been a great trading market if you played by the rules