Interest Rates & Financials; What Thing Looks like the Others

The 10yr yield has formed a pattern that has some potential at least. On its own it does not support a bullish view on yields (bearish on bonds), but suffice it to say, if long-term Treasury bonds were to drop and yields rise, the Financials and Banks would likely benefit.


But where it gets interesting is in the Treasury bond market’s sentiment and CoT structures. Here are the Public Optimism Index and the Commercial Hedgers’ positions, courtesy of Sentimentrader.


We noted in an NFTRH update last week that public sentiment had knee-jerked to over bullish, seemingly out of nowhere and that the Commercials were lurching heavily to and into net short territory.

You will recall that was ground zero for the contrarian bond bounce view back in December and January as we answered Bloomberg’s R.I.P. Bond Bull headline. This was due to the extreme over bearish sentiment in both media and the public, while the Commercials had quietly amassed a massive net long position.

Well, before I saw the above bearish data, Bloomy had already indicated that the contrarian play was over, as we noted at the time. Prices of bonds could still rise, but the contrary bullish benefit has evaporated like a single drop of water in the hot desert sun.

Of course, there are many factors at play now and many markets hanging in the offing. Some sectors will tend to benefit and others come under pressure, even all things being equal in the broad stock market; and I have a high risk view of the stock market when dialing out to a big picture. It’s bullish, but risk vs. reward is its own animal.

Like a cherry on top of all that will come yield dynamics because it is not as simple as saying ‘the yield curve is rising so inflation is indicated’. If the curve rises along with nominal yields it would indicate a developing inflationary environment. But if it rises with yields falling? That would indicate systemic stress and evaporating liquidity. Or the curve could just continue hanging around in subdued state and we go status [sort of] quo.

Okay, I am blabbing as this post never meant to get so talky. But there it is anyway. Have a good night.

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