As we pointed out recently, the Treasury market had reached an overbought level (in the TLT Treasury ETF) that had never been seen before…and the oversold level on the yield of the U.S. 10yr Treasury note had reached a level not seen in over 20 years…and therefore, the bond market was VERY ripe for a short-term reversal. Now that we’re getting exactly that kind of reversal, it’s laughable to hear so many Wall Street sell-side strategists trying to say that this move in bonds is a signal that the slow-down in U.S. and global growth has bottomed.
Don’t get us wrong, the 11% jump we’ve seen in the 10yr yield IS a very large one…but just because almost nobody saw the move coming (except for us), it doesn’t mean it will become a compelling long-term move. In our minds, it is nothing more than a move that is working-off the extreme technical positions that existed at the very beginning of September…and thus it should not be extrapolated out through the rest of this year.
This is just another example of when many strategists...who never worked on a trading desk...spend too much time trying to explain every move in the markets by using what they learned in a text book in college & business school.
Since the move in the Treasury market should not be extrapolated out, neither should the "rotation" that has taken place in several different equity groups. To find out why this is the case...but why one group's move SHOULD continue (the tech group)...click here to subscribe to our premium newsletter.