Aug 7, 2023
Treasury yields at the long end of the curve are once again rising today with the yield on the 30 year up 3.3 bps as of this writing. That is in the context of what has already been a dramatic move higher in yields of long term Treasuries. As we discussed in Friday’s Bespoke report, the ETF tracking longer-dated Treasuries, the iShares 20+ Year US Treasury ETF (TLT), fell 1% or more three days in a row last week (prices fall when yields rise). Meanwhile, that move higher in long end yields has also been observed in other places of the world like Germany, as discussed in today’s Morning Lineup.
Given the steep rise in yields and hence a drop in the price of TLT, the ETF is trading at extremely oversold levels. While it has come back slightly and is currently 2.66 standard deviations below its 50-day moving average, at the most oversold reading last Thursday, TLT traded 3.84 standard deviations below its 50-DMA. In its over 20 years of history, that is the most oversold reading on record.
As shown above there have only been a handful of other periods in which TLT has fallen at least three standard deviations below its 50-DMA as it did last week. In most circumstances, when an asset reaches such extreme levels of oversold, the thinking is that some upside mean reversion can be expected. However, the exact opposite has played out for TLT historically. As shown below, across the prior seven instances in which TLT got 3+ standard deviations below its 50-DMA, the ETF was lower a year later four times.
Aug 3, 2023
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, after a recap of the most notable earnings including those of Amazon (AMZN) and Apple (AAPL) (page 1), we dive into the rapid steepening of the yield curve (page 2). We then show the disinflationary trends in productivity and cost data (page 3) and service PMIs (page 4). We finish by running through the latest housing inventory data from Realtor.com (page 5).
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Aug 3, 2023
Equities have rolled over in the past week with selling hitting a pinnacle when the US government’s credit rating was downgraded by Fitch on Wednesday. In spite of this, sentiment has not taken a hit. The latest survey from the AAII showed 49% of respondents reported bullish sentiment which compares to 44.9% the prior week. With nearly half of respondents reporting as optimists, bullish sentiment sits handily above its historical average of 37.5%. In fact, this week marked the ninth in a row with a bullish sentiment reading above the historical average for the longest such streak since one that ended at 13 weeks long in May 2021.
The increase in bullish sentiment resulted in bearish sentiment to drop down to 21.3% which marks a 2.8 percentage point decline on the week and resulted in the lowest bearish reading since June 10, 2021 when it was 20.7%. Similar to bullish sentiment, that is the ninth week in a row with a reading below its historical average, and that is the longest streak since July 2021.
As a result to the increased optimism, the bull-bear spread ticked up from 20.8 last week to 27.7. That is still below the recent high of 29.9 from two weeks ago, but reiterates how investors have an elevated degree of optimism.
Not all of the gains to bulls came from bears. Neutral sentiment also declined this week falling from 31% to 29.7%. That is in the middle of the past few years’ range.
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