Key Tactical Takeaways:
> While the extended nature of cyclicals lends to the idea that equity indices are vulnerable to mean reversion, the fact that cyclicals and staples trade at all-time highs, with only cyclicals leading the S&P 500, speaks both to the market's broadening participation and lack of risk-off appetite. In short, we're only looking for a healthy correction to begin soon.
> This morning's Treasury bid will put the ST Noise Buffer at 0.67% in 10s to the test. Even IF it fails to keep buyers at bay,10s will continue to target 0.75% ahead of Wednesday's Fed minutes pending a close below the 0.63% NT Stop.
Some Quick Thoughts:
While heavy bond supply probably helped contribute to last week's Treasury sell-off, there also appears to be a repricing of the global economy to the upside following better-than-expected economic data and inflation data. Speaking of inflation, last week's surge above the post September 2018 deflationary trend by the 5-Yr, 5-Yr forward rate last week also contributed to the duration shed.
There are also signs that bond yields are...
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