In his latest note, he writes that the treasury market has seen higher yields for 4 straight weeks, but that treasury market is oversold now. He points to three reasons why this has been happening:
- There has been some stability in Europe with ECB head Mario Draghi and German chancellor Angela Merkel’s comments on ECB bond buying with strict conditions soothing markets.
- The Dow and S&P500 are on their longest winning streak since January 2011. And despite the lack of volume “price action on the surface has been impressive in a month that generally sees more in the way of turbulence and selling pressure than a market grinding higher in a fairly quiet fashion”.
- Finally economic data is soft but not as bad as before and it really does look like the housing market is recovering.
But Rosenberg points out that these short term sell-offs are not unusual:
“We have had no fewer than eight such episodes of 40+basis point spasms since yields peaked in the summer of 2007. Each one did not last long and presented a gift of a buying opportunity for patient investors who have an ability to see the forest past the trees. Typically, these hiccups last 49 trading days and the yield rises an average of 88 bps, with about three-quarters of the prior rally being reversed.”
Rosenberg has previously said that the the bull market in treasuries won’t end until the long bond yield declines to its early 1940s-low of 2 per cent. And he doesn’t rescind that thesis in his latest note.
“Is this anything more than blip in what is still a secular bull market in bonds?” he asked rhetorically. “Again, recent history would say yes.”
Here’s a chart from Rosenberg that shows previous spasms in the treasury market:
Photo: Gluskin Sheff
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