"It's Deja Vu all over again !" Yogi Berra, 1925 - 2015

ref :- "Treasuries Finally Give In to Tech Turmoil" Bloomberg Markets Just one of many fine examples that sprang from the lips of that great malapropist and baseball icon Yogi Berra. We couldn't be 100% positive, but on balance we think it unlikely that Mr Berra had either the time or inclination to follow financial markets too closely, but the markets being what they are, the old "Deja Vu" line gets wheeled out quite a lot, inadvertently or otherwise. As we limp towards the long weekend and the end of the first quarter, some are wondering whether Treasury market action in 2018 might mirror that of 2017 closely enough to merit Yogi's call. *** Reminder to newcomers : bond prices and bond yields move inversely to each other, so as bond PRICES go up, bond YIELDS go down .... and vice versa *** In truth, it's a bit of a stretch. Both years started with US 10yr Treasury yield around 2.40%, but in 2017 it jagged around (making a high of just 2.50%) before, contrary to many forecasts, falling back to a low below 2.10% in August. 2018 has been very different .... the yield rising to a high above 2.90% in February and then, again to the surprise of the majority, failing to break through the 3.00% barrier and falling back to a low of 2.74% yesterday. Plainly the charts are not at all similar, but the question really being asked is "Can yields continue to fall when all the more obvious fundamentals tell us they should be headed higher, just as they did in 2017 ?". Or , if you prefer..... "Does the most recent action in yields, which includes a move down out of a 20 bp trading range in place since early Feb and a break of the key 50 day moving average, presage much lower yields despite tax cuts and increased government spending ?" These measures would normally be expected to increase issuance of government debt and be inflationary, and as such be hurtful to bonds and force yields higher. The reasons for the surprising (for some) failure of yields to carry on higher are very different too. Last year, inflation data repeatedly failed to live up to higher expectations and after a number of misses elsewhere the markets were losing faith in President Trump's ability to enact his agenda of fiscal stimulus. This year, it's been mostly about a flight-to-quality as investors fret about the turmoil in tech stocks and general stock market volatility. Supporting the idea that yields may go yet lower is the market positioning of speculators in bond futures markets, who are sitting on the largest net short positions in a year and tend to use technical tools like moving averages to help decide on trading strategy. Expect some short covering : prices up, yields down. Frankly, it's a bit early to call a sea-change in bond markets. Much will depend on whether stock markets recover from their wobble, or it develops into a rout. At the very least though, those bond market bears who believed that rocketing yields were guaranteed have been reminded once again that there's no such thing as a sure thing. They will be hoping that Yogi's Deja Vu scenario doesn't come to pass , and presumably feel the same way about another piece of gold from the great man : "The future ain't what it used to be ..."

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