MacroResearchBoard

Treasurys: Time To Digest – November 19, 2018

Treasurys: Time To Digest

Long-term Treasury yields have undergone a series of step ups followed by digestion periods in recent years. The digestion earlier in 2018 witnessed only a modest dip in yields (despite sizable equity market losses), because core inflation was creeping up and leading indicators signalled that pressures were continuing to build.

Last week’s research focused on a number of key investment issues, including the predictably ugly turn in Brexit and various critical political risk factors (as well as the budding opportunity in Korean and Taiwanese equities). In addition, we also examined how the Treasury bear market would likely proceed. Our short-term view is that conditions in the Treasury market are stretched after the recent runup in yields, and thus yields should consolidate for a time. However, we doubt that yields will drop much and expect the bear market to resume beyond the near run, and thus do not recommend playing the long side during this digestion phase.