Interest Rate Report: Strategy and Trades
The next trade for bonds
Hello everyone,
The trading week is officially over but I wanted to summarize several important things for rates.
First, I wrote the interest rate primer and my views on ZT. Check them out in these articles:
Second, we didn’t have any huge data releases this week but bonds used the PMIs and initial claims data to sell off from the CPI high. However, the curve did not steepen which is a red flag.
I laid out WHY bonds have been selling off since CPI in the interest rate report below but we are at a point in time where equities are increasing their sensitivity to rates. As you move through various growth, inflation, and liquidity regimes, the sensitivity of equities to bonds changes. This is important to monitor in connection with economic data because it frames HOW you should be thinking about equities.
Momentum remains skewed to the upside in equities but pull backs are being driven by rates. The implication of this is that if you know how far rates can pull equities down then you can trade equities with greater precision.
I have laid out the full analysis for rates in the alpha report below (for paid subscribers). I will be expanding on this tomorrow with an additional article on more economic data you need to be watching.
As I noted in the chat, I like the ZT long here as we move into the PCE and GDP print next week:
As always, if you have any questions, please feel free to reach out. I will be expanding my rate views to equities, metals and FX over the weekend. Keep an eye out for those.
Thanks
