Tuesday, November 25, 2014

Are There No Sellers of Treasuries?




Are There No Sellers of Treasuries?

There appears to be little interest in selling Treasuries at this stage.  The 3.9% Q3 GDP release, well above the 3.3% Bloomberg survey consensus, should have been expected to result in a more serious pull back in Treasury and Eurodollar futures.  Instead, even the modest initial declines have been somewhat recovered.   

The problem seems to be there is simply no interest in getting short Treasuries at this time.  Be it yearend or lingering concerns for global growth prospects, there seems to be no recent piece of news that can jar psychology enough to induce strong selling. 

A look to the JPMorgan Treasury Investor Sentiment Survey reveals further that ‘active shorts’ are as few as at any time since August 2012.  This may demonstrate why the market reacted as it did to this GDP release.  No one has been reviewing Treasuries with an eye toward initiating a short.     

You may remember back in late September, prior to the mid-October Treasury melt-up, I pointed to the languishing low levels of JPMorgan Treasury Survey LONGS (‘Still Absent Treasury Longs-Turning Point’), suggesting there was room for further Treasury strength.  We may be nearer to a point where traders become more interested in taking on short positions. However, the technical conditions have not signaled an immediate bearish reverse. At this stage, we would be more inclined to sell into any protracted strength, laying confidence in our earlier call for the ‘cyclical yield low’ to have been established. 




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