June 15, 2021
Ten-year yields are trying to break through their 100-day moving average at 1.50%. The month-long rally in Treasuries (yields lower) was almost entirely driven by technical factors, rather than growth fundamentals. The rally in Treasuries started in mid-May when commodity prices pulled back in response to China’s efforts to cool markets/crackdown on commodity speculators. We use technical and positioning signals all the time, establishing the ~1.45% level in 10-year yields as support during the pullback. If breached and sustained, levels below ~1.45% would be our cue to pivot from our 10-month long preference to add value sector equity positioning over growth. Thus far, the ~1.45% level has held and we’ve kept the value equity bias. Last week’s Treasury short-covering rally took the 10-year Treasury put/call ratio to overbought extremes and sets the stage for a systematic sell signal (yields higher). We stick with our reflation, reopening and value-themed equity bias on expectations for higher yields to reflect above-trend global growth, super-strong US consumer and early capex cycle.