UK – Coming into summer, economists, caught up in the rush of the crowd, built a collective error into their models, a slight underestimation of real-sector activity. Thus, we recommended that clients look to own the UK term structure, the simplest method to transfer this insight. That has worked moderately well, from 270 to the present 292; 5 -10, from 95 to 104. A slight error remains to the consensus view vs. economic reality just ahead. Thus, as we have warned earlier, do not look for the opportunity to sell this spread as course-of-least resistance is to remain wider into year end.
US – Here we had a little fun with the crowd, catching them at their most vulnerable after the announcement of so-called QEIII. Clients were to sell (S-B) the US curve Sep/14, then 116, 5-10 and 285, 2-30. This came in nicely and clients were advised in our Sep/27 sketch to take this spread in (then 100, 254); under no circumstances to take the position into today’s NFP. Last, 106, 270.
We did not have the numbers to today’s print naturally but we had the risk for something more than expected. Leave it alone at the moment but look for the opportunity to get long (L – S) at the next bout of “weakness.”
The US engine will just out-perform into year end.
Robert Craven
US – Here we had a little fun with the crowd, catching them at their most vulnerable after the announcement of so-called QEIII. Clients were to sell (S-B) the US curve Sep/14, then 116, 5-10 and 285, 2-30. This came in nicely and clients were advised in our Sep/27 sketch to take this spread in (then 100, 254); under no circumstances to take the position into today’s NFP. Last, 106, 270.
We did not have the numbers to today’s print naturally but we had the risk for something more than expected. Leave it alone at the moment but look for the opportunity to get long (L – S) at the next bout of “weakness.”
The US engine will just out-perform into year end.
Robert Craven
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