In the JPMorgan (NYSE:JPM) Treasury client survey for the week ending March 24, longs showed a further decline; it was very interesting to note that the active survey had zero longs and had its largest net short since June 24, 2013. Clearly -- and this survey highlights it -- last week's sell-off was as much a function of positions being exited as it was re-pricing faster rate hikes.
Here are the survey results:
- Longs down to 11 from 17
- Neutrals up to 64 from 59
- Shorts unchanged at 25
- Net long down to -14 from -8
- Active longs down to 0 from 15
- Active neutrals up to 62 from 54
- Active shorts down to 38 from 51
- Active net long down to -38 from -16
I think this further cements the idea that there will be a bear-market bounce in bonds here, but the overall trend remains "up" for intermediate yields. I've included a chart below of the active net positioning (light blue) versus the 10-year yield for the last three years.
Click to enlarge
I read through a speech that Federal Reserve Board member Jeremy Stein delivered last Friday (March 21). In my opinion, considering that he's trained as an economist, Stein is the Federal Open Market Committee (FOMC) member who is most in touch with the market. What I found most relevant was his long discussion on how the market judges risk premiums and how that can be used as an effective gauge when conducting monetary policy. Two of the risk premiums that he stresses are the credit risk premium (the spread of corporate bonds over Treasuries, minus the default rate) and the Treasury term premium (the spread between the term rate for a specific maturity Treasury and the market rate). I think it's worth taking the time to read it through, especially since he has done work on it, which suggests the Fed may be considering it.
Shanghai-traded copper futures gained 2.23% last night and are still up around that this morning. Iron ore futures in China traded limit up (+3.5%) last night (hat tip: Neil Azous). There is no word on whether or not it was a government intervention, but copper has now recovered 3.6% of its losses from the start of this month.
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