Last week we were bearish toward bonds, but we now shift our view in favor of the bull camp. We have altered our opinion because of a developing trend of slackening US and Chinese economic data. We think the slowing trend has been accentuated by a lack of workers willing to take jobs, resulting in restaurants closing or reducing hours, among other things.
The September non-farm payrolls report could be a major inflection point for all the markets, with a disappointing result potentially seen as a reason for the Fed to push back its tapering plans. And while the Treasury markets did show a lack of resiliency in the wake of a third straight week of increases in initial jobless claims and massive equity market losses, soft economic numbers are stacking up, and inflation measures have moderated, and the Fed decision to taper before the end of the year is being called into question.
The technical picture also seems to benefit the bull camp, as the declines in the past two weeks have been massive and concentrated. The most recent Commitments of Traders report showed a spec and fund net short of 108,752 contracts for Treasury Bonds, the largest net short since July.
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Originally Published on October 1, 2021
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