One of the key indicators we track in our bond strategy analysis is global sovereign bond-market breadth. This simply captures the proportion of global government bond yields that are trending up/down (vs. their 50- or 200-day moving average). It’s just like stock-market breadth. A quick look at the chart below shows how it works in conjunction with the 3 major bond market tantrums of the past 5 years. I bring it up because after bond breadth crashed in the “Trump Tantrum,” bond breadth is again breaking down.
Notably, it comes after futures positioning had become extremely stretched to the long side – classic whipsaw conditions as the crowd rushed from one end of the spectrum to the other. Our view, and what we've been telling clients, is that bond yields were due for another run given the reset in breadth and positioning and the still-constructive global growth outlook. So the recent jump in yields, fueled partly by taper talk from the ECB and BoJ, likely has further room to run. The line in the sand will be about the 2.6% mark for US 10-Year bond yield were the previous surge in yield topped out. Time and data will tell whether the line gets crossed, and if it does, it will be game-on for bond bears.
Bond-market breadth has started to recover and has pretty much undertaken a "reset" since the reflation/trump tantrum, but is now breaking down again.
On speculative futures positioning we've seen the crowd run from one extreme to the other – the question is how long those crowded longs take before they capitulate.
