Monday, January 5, 2015

Portfolios Rebalance Without Price Concern

Treasuries, gold and the dollar are higher, stocks and oil are lower.  Today’s trade may be more about rebalancing than anything else.  This is the first ‘real’ day of business in the New Year and there would be those who want to get their ‘work’ done early.  There is a bit to look after later in this week – Wednesday’s release of the December FOMC meeting and Friday’s employment statistics.  This may be reason enough for some to get their rebalancing taken care of.   

Otherwise, the spotlight shines hard and unfriendly on Greece and so the quality flight to Treasuries further supports prices there.  Right now it appears as if U.S. Treasury traders are listening to the wows of Europe and in particular to the upsetting events in Greece.  Clarity may not come immediately and there is always room for new pockets of displeasing geopolitical events.  

As earlier noted however, the tendency to forecast struggling U.S. domestic growth prospects as a result of weakness in Europe, Japan, Russia and China may not endure.  Not too long ago, consensus was centered more closely toward accepting strengthening U.S. domestic prospects as an engine for improvement elsewhere.  That line of reasoning may soon prevail again.   

In addition, we would remind that the cyclical yield low of 1.86% on October 15 is expected to hold as a yield low, at a minimum until at least the end of Q1 2015.  Those finding favor with this analysis  could position by selling call spreads in 10 year Treasuries.  We have looked at some positioning strategies for clients and would welcome additional inquiry.   
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