The crowd is piling into TLT (iShares US Treasuries 20y+ ETF) calls
Friday was the largest TLT call volume ever. Source: TME, GS
How low can the US 10-year bond yield go?
The US 10 year is breaking well below the short term trend line, hitting the 50 day right here. There is a small support here, but the bigger support is down around 4.3%. Note that the 200 day remains way lower, down around 3.95%. Source: TME
The U.S. economy saw job creation decelerate in October, confirming persistent expectations for a slowdown and possibly taking some heat off the Federal Reserve in its fight against inflation
Nonfarm payrolls increased by 150,000 for the month, the Labor Department reported Friday, against the Dow Jones consensus forecast for an increase of 170,000. The United Auto Workers strikes were primarily responsible for the gap as the impasse meant a net loss of jobs for the manufacturing industry. The unemployment rate rose to 3.9%, against expectations that it would hold steady at 3.8%. Employment as measured in the household survey, which is used to compute the unemployment rate, showed a decline of 348,000 workers, while the rolls of the unemployed rose by 146,000. A more encompassing jobless rate that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.2%, an increase of 0.2 percentage point. Meanwhile, Household Survey showed a huge 348k loss in jobs during October. Dollar drops, Bond yields slide following VERY disappointing US jobs data which fuel bets Fed is done Source: CNBC, Bloomberg
The 10-year note yield is now down ~35 basis points in just 5 days
This is the biggest pullback in treasury yields since the October 6th high. Let's keep in mind that it is not only due to a shift in Fed expectations, but rather a shift in US Treasury borrowing. As the US Treasury ramps up issuances of short-term debt, long-dated bonds are falling. However, higher for longer Fed policy seems to be setting a floor on this pullback. Source: The Kobeissi Letter
This sweet spot where you have "pretty solid" companies with ROE of 10-20% and price-to-sales ratios under 1.0 is virtually non-existent in the US
Only 20 companies in the S&P 500 fit that profile. In Japan, such companies are one-sixth of the Nikkei 225 - source: Jeff Weniger
Annualized Total Returns over the last 7 years...
US Stocks: +8.8% US Bonds: -0.3% US 60/40: +5.4% Source: Charlie Bilello
While there are reasons to turn tactically bullish on long dated US Treasuries ->
Let's not forget that Treasury supply (at the time of QT and waning demand stemming from China, Saudi and the likes) remains a headwind for the bond market
It took 20 years for US interest payments to reach 4.5% of GDP in the 1970s and 80s
Today, achieving the same level will take less than 3 years. This starkly highlights the speed of the rise in Treasury yields and the magnitude of the debt problem. Source: Tavi Costa, Bloomberg
