A faint light is often all that is cast upon truly outstanding positioning strategies before they ready. Fundamental analysis, awareness of monetary policy developments, positioning conditions and other trend characteristics followed allow candlestick charting analysis to shine needed illumination. Martin B. McGuire
Monday, December 8, 2014
Treasury 5-30 Yield Spread; Extraordinary, But Enough For Now?
We have closely followed the
Treasury 5’s-30’s yield curve spread well before August
2013 with anticipation that Fed policy ‘normalization’ the next time around
would require greater effort on the part of policy rates. The baggage of a large Fed portfolio and
resultant excess liquidity would require a stronger policy rate footprint I
have long suggested, even with the new tools the Fed is now practicing.
My minimum objective of 120
basis points wide by March 2015 was aggressive when expressed in early-March of
this year following a conflicting view tweeted by Bill Gross (‘Disregard;PIMCO's
Gross tweets: "Sell what the Fed has been buying...‘). At that time in early-March of this year, the
forward market priced a 120 bp wide 5-30 yield spread only as soon as September
This spread trades at 126
bps now and in all likelihood will eclipse my once aggressive call well before
March of next year. For now however, it
has been a very aggressive 17 basis point flattening since the start of the
month. While we might look for even more
flattening in the coming weeks and even later this week, we should probably
expect some flattening position unwinds today.
For guide, any legging of this
position unwind or conversely, tactical positioning for a steepening would likely
benefit from initiating the sell side of the equation first if any legging is
to be done.