U.S. bond bulls ready to charge after payrolls report, survey says

August 2, 2012

(Corrects to show CRT is not a primary dealer)

Bond bulls are ready to charge after Friday’s July U.S. employment data, according to a survey by Ian Lyngen, senior government bond strategist at primary dealer CRT Capital Group.

Says Lyngen:

Despite the vacation season and the multitude of ‘out of office’ responses we got, participation in this month’s survey was above-average and consistent with a market that’s engaged for the big policy/data events of the summer. As for the results of the survey, in a word: BULLISH.

Lyngen argued the survey results were the most bullish since November 2010, a point that was followed by a selloff that brought 10-year yields from 2.55 percent to 3.75 percent over the following four months.

On the eve of the July payrolls report, the benchmark 10-year Treasury stands at 1.49 percent.

In a post-non-farm payrolls rally, we found 23 percent of respondents willing to chase a rally — much higher than the 10 percent average and the highest since April 2012. Very few participants were willing to sell strength: just 19 percent versus a 40 percent average, the lowest on record.  (The survey has been conducted since 2003)

If bond prices weaken after the government releases the employment data, 63 percent of those surveyed stand ready to buy the dip, Lyngen said. That compares to a 41 percent average and is the highest level since November 2010, he said. Just 10 percent would sell, versus a norm of 17 percent.

What explains the bullishness? Central banks that appear bigger on words than deeds, Lyngen said.

The Fed offered little solace and the ECB less, which suggests the economy will slow further and the monetary policy response will ultimately have to be larger.


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