Tuesday, September 30, 2014


We learn today that the JPM Treasury Client Survey shows again that only 8% of ‘Active Clients’ are indicated long.  This is a fairly long series of low percentage active longs and we are prompted to question the meaning, if any, for lack of bullish interest.  There was only one other time where any of the JPM Treasury Client Survey categories showed a longer series of similar marks. 

Back in June to November of 2010 there was a period of 19 weeks where level of ‘Active Client Short’ was zero.  Prior to that period, ten year treasury yields fell 80 bps from April to June of 2010, and fell another 80 bps during the period where no active client indicated a short.  Clearly, there was reason not to have been short Treasuries during that period. 

It is not so clear today that there is so little reason for being long Treasuries.  Ten year treasury yield currently at 2.49% is roughly unchanged from October of last year.  The coming closure of the Fed’s latest asset purchase program in October brings thoughts of prospects for normalization of monetary policy.  Those thoughts are nearly singularly about how soon and how steep thereafter rather than of the if/when variety.  At any point in the near term, the risk is high that a piece of data (think Friday Employment Report) could change the sway of current thinking.  There is room therefore for a greater number to price further out the curve a likely Fed policy rate liftoff date, thus lifting Treasury prices.   

Given the still tentative nature of the forward economic progress since the Q1 negative GDP reading, it is rather curious that so strong a consensus for bullish economic prospects has been achieved.  Recent data about the state of the residential housing market should have raised concerns beyond the attention devoted within the most recent Fed Beige Books.   Just released pending home sales and prices paid results could attract greater focus to this sector. 

In an earlier note (below) we discussed the outcome of a prior series of low bullish JPM Treasury Client Survey results, where the percentage of active client longs was similarly at 8 for as many as 9 week in early 2011, noting the spike in active longs that eventually followed.  What we would also have you know is that in that case, the absence of longs could not have come at a worse time.  Treasury 10 yr yields fell dramatically by 150 bps in the 5 month period beginning toward the start of that period of absent longs.  There is clearly room for lower yields finding additions to a bullish mindset into this year end.   

 From: MARTIN MCGUIRE At: Sep 25 2014 10:06:31
Subject: Eurodollar Futures / Treasuries Advance WITHOUT LONGS
On moderate volume, the Eurodollar futures advance with the yield curve flattening throughout the first 6 years. The long end, both in Eurodollars and Treasuries are outperforming as equities fall hard, distancing themselves<http://diagnosticsbycandlelight.blogspot.com/2014/09/s-500-index-no-month-end-buying-for.html> from yesterdays advance. There appears room for additional gains in fixed income as heightened conviction about a strengthening economy are questioned. There is a decent short position in place and we have seen some surveys that indicate a very low level of fixed income longs recently. Consider below a look at the JPM Treasury Investor Sentiment Active Client Long Index. There has been 11 weeks where the reading of 8 has stood. While there have been many instances where even 0 Active longs have been registered, we find it queer that so long a length of time has passed without a change in that number. My guess that the break-out from 8 will be toward higher numbers of long. For guide, since records exist from 2003, there has never been a period of successive similar marks as long as the current 11, having started in mid-July. The only other period where as many as 7 or more similar marks was in March-May '11, with the result being a spike higher to 46 longs following the last string at '8'. hmmm how many longs do you know. how confident are you that Q1 negative GDP was a fluke.

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