Most Hated Men in Stamford Suspend Forecasts on Greece Turmoil
Friday, June 17, 2011
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June 16 (Bloomberg) -- Strategists are suspending forecasts for Treasuries to decline as Greece's sovereign-debt crisis drives investors to the refuge of U.S. government securities even with yields at the lows for the year.
"While handing out my printed comments to the trading desk early yesterday, I begged those who would listen to prepare for 25 basis points of higher rates," William O'Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said in a research note. "Eight short and painful hours later I was the most hated man in Stamford."
O'Donnell wasn't alone when it came to being caught by surprise by the surge in Treasuries. David Ader, head of government bond strategy at Stamford-based CRT Capital Group LLC, said his bearish call yesterday came at the wrong time.
"I experienced a pain trade," Ader said in a telephone interview today. "I thought we had all the ducks lined up to sell off and I was wrong. Clearly the data was not the inspiration. It's this overseas catastrophe that's taking hold and forced me to get out of my bad position. I'm neutral now."
The drop in yields and the increase in volatility in the world's biggest securities market told him that it's best to "sit on the sidelines" for clearer signals about the next 0.25 percentage point move in 10-year note yields, O'Donnell wrote. He wasn't immediately available to comment today.
Bank of America Merrill Lynch's MOVE Index, which measure price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, rose 4.1 percent to 85.90 yesterday, the highest level since April 8.
'Out of Oxygen'
O'Donnell had written in a research note yesterday before the Greek debt crisis intensified that the bull trendline had been broken on June 14 as yields rose and that daily momentum was "solidly bearish" for two-year note yields.
"Twos have run out of oxygen below 40 basis points," O'Donnell said yesterday in a telephone interview, adding that the yield on the security may increase to 0.5 percent over the next two to three weeks.
The yield on the two-year note touched a 2011 low of 0.3374 percent today, after closing at 0.376 percent yesterday and 0.44 percent the previous day.
"The dam burst yesterday and it was early September 2008 all over again where the feeling was that we're all being tasked to run through a minefield with snowshoes on," O'Donnell wrote today. "I walked in yesterday with supreme confidence that the unambiguous break of bull trendlines during Tuesday's session, and the concurrent bearish turn in daily momentum studies, would lead us to higher rates and an overdue bull market correction."
'To the Sidelines'
The decrease in the two-year note yesterday was the biggest since April 15. Ten-year note yields fell 13 basis points to 2.97 percent, erasing the previous day's gain, which was the most on a closing basis since Jan. 5. The yields rose June 14 above 3.10 percent for the first time this month.
Ader had noted in yesterday's morning note that a correction in Treasuries was due and that 10-year note yields may reach the 3.20 percent range.
The yield on the 10-year note hit a 2011 low of 2.8795 percent today. It closed at 2.969 percent yesterday, down from 3.097 percent on June 14.
"The gyrations and full retracement of Tuesday's breakdown forces us to the sidelines," Ader wrote today. "We simply cannot readily understand or incorporate the Greek/Ireland/EU stuff with a degree of confidence to anticipate an outcome or trade the headlines."
--With assistance from Dennis Fitzgerald in New York. Editors: Dave Liedtka, Greg Storey
