Fears Permeate Asian Trading...Risk Off...10 Yrs Hit 1.763..Dead Cat Bounce
We said earlier this week that the boat had shifted too short for treasury positions before next week's Major Fed Meeting and to expect as much as a 15 basis point reversal... We have now seen that with 10 years hitting a high yield of 1.90 earlier this week and this morning a low yield of 1.763... Similarly with 5 years, from 1.69 Tuesday to this morning 1.54... Unfortunately with the continued ugly trading of equities, and the some of the high fliers like Netflix, DOWN 100 POINTS FROM LAST NIGHTS CLOSE OR 20%, the fear of "get me out" is more prevalent than bottom fishing... We can see another move lower in rates...with some of the smart money that bought 127 puts on treasury futures, taking profits this morning, or at least liquidating...
Interesting comment from Bespoke this morning.."First time in 20 years that the Nasdaq was up 1%+ intraday and finished down more than 1% on BACK TO BACK DAYS"... Similar to what we wrote after the close last night.
" Both the Nasdaq and S+P had massive reversals today with the Nasdaq dropping from a 14642 high at 11 am to close at 14140, down 500 points intraday... Add another 135 as we write this... The S+P was no better as it dropped 100 points from the high to close.. Add another 22 now... Ultimately we will call it an UGLY close... " and we do not think the worst is over... We also said last night
Outlook, not good between now and next Wednesday...According to Charlie McElligott of Nomura, said that the S+P had to hold 4507 to prevent the CTA model from flipping short equities... The S+P 100% long signal is now flipping 37% short...
Overnight S+P futures are down 24 points, which is 23 points above the low... We think it could close up today, but the charts are clearly ugly with both the Nasdaq and Russell in negative corrective territory...
Long duration corporates are showing some strain...but while spreads continue to leak wider, they remain solid... Yesterday 5 billion + came to market with wider concessions than we have seen recently, but they got done... That brings the week to date to about 35 billion... We are starting to see more sellers out there testing the water... Our crack Muni team told us they saw over 7000 bid wanteds yesterday... Our mortgage team has seen bid lists increase as well... So there are sellers out there, but buyers are still out there in force.. We think it is just a matter of time before we see correcting equities widen out the corporate bond market spreads... US Corporate bond Index is heading to its worse monthly close since March 2020, and its worse January performance in 6 years.
Rates.. The 10 year yield, which we pointed out above hit 1.90 this week, has traced and completed a "ISLAND REVERSAL TOP" , a rare technical pattern that occurs when an upside gap in an uptrend is almost immediately followed by a downside gap,,,Unless 10 year yields close above 1.80 today, we could easily reach 1.65-1.70 before next weeks Fed meeting... While we all know the Fed has pivoted Hawkish and will start to raise rates this quarter, it does not mean rates on 10 years will be a straight line up to 2%...