This is a short update on the status of our bond trade. After finding a bottom as selling pressure abated, the PIMCO ETF “BOND” eventually broke above the 20- and 50-day moving averages in the first few trading sessions of 2017 (1/2 – 1/5), but has since pulled back, suffering a sharp reversal. After a few days when Mr Bond was clinging on to the 20-day moving average BOND closed on or very close to the 20 DMA on 1/19, dipped briefly below on 1/20, but has bounced back strongly on Monday.
Price action in other fixed income instruments such as TLT, MUB, IQI and AGG has been broadly similar, with the trading picture most favorable for MUB.
Here at Falling Knife Capital, we still think that Mr. Bond will have a soft landing this time. In fact, now that the Inaugural is behind us, with all of its “Sound and Fury signifying nothing”, Mr. Market will likely undertake a more cerebral evaluation of the likelihood of 4, 5 and 6% US GDP in 2017. A renewed safe haven bid for Mr Bond and other fixed income assets seems certain before long, as Real Money and commercials have increased their net longs. The speculative community remains extremely short bonds, providing a mechanism to accelerate any recovery in fixed income once it gathers speed, eventually forcing a surprising number of concealed shorts to return to a more neutral positioning in Treasuries.
(in which Mr Bond clings on, has a soft landing, finds unexpected support and finally takes off….)
This post was written by Leftback