In markets it’s important to be mindful of both the tides and the waves, and the latest weekly sentiment survey on Twitter provides some food for though on that statement in regards to the bond market. While equity “fundamentals” sentiment has been holding up well, bond market fundamentals sentiment has started to show some disagreement. And when we look at our composite measure of treasuries sentiment or speculative futures positioning across the curve, it appears the waves may change, even if the tide is still going out on bonds.

Specifically, when sentiment becomes stretched like this it raises the odds of a short-term reversal. It’s these short term moves that I refer to as waves. Yet it’s important to keep perspective on the medium term outlook, and the multiple breakouts in government bond yields (not to mention the changing tides in monetary policy and solid growth/inflation outlook globally) mean that the medium term bias is still to expect higher yields. So while the short term waves may be coming in, the tide is still going out on the global government bond market.

The main points and conclusions for investors are:

  • Equity market fundamentals sentiment is holding up well, although technicals sentiment has been more volatile.
  • There is some disagreement between bond market and equity market fundamentals sentiment.
  • Our composite view of bond market sentiment has moved to extreme bearishness and thus the risk of a short-term reversal is elevated.
  • Over the medium term the multiple breakouts in sovereign bond yields remain in play.
  • 1. Equity Sentiment: The latest weekly survey results showed both fundamental and technical net-bullish sentiment fall on the week. Notably however, “fundamentals” sentiment only dropped -2pts whereas “technicals” sentiment dropped -14pts. This is a key observation, because it has been the surge in fundamentals net-bullishness that seems to have been driving the market upwards over the last 6-8 months.  

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