In span of a few weeks, and based on a set of spurious set of economic data (like the fact that nine States had to guesstimate their level of jobless claims in last week’s “improvement”) a new consensus view has emerged that the double-dip scare of July and August was somehow just a bad joke not grounded in anything real, and that everything from housing, to employment, to consumer spending is doing just fine, thank you very much. Let’s all take a deep breath and respect the fact that the equity market and bond yields both peaked in April, not unlike how they both peaked in 2007, 2000, and 1990 (and we can go on). These are very important market signals in terms of what they are telling us about the future direction of the economy — future information transcends what private payrolls or transportation rate indices are telling us, which is only about the present. And, as is always the case coming off peaks in equity valuation and bond yields, the markets do not move in a straight line down and volatility is the watchword.
The good news for us bond bulls is that it looks like the net speculative long position in the Chicago Board of Trade (CBOT) has been wiped out. The non-commercial accounts, who were betting against the downtrend in yields all year long, went net long 888,858 on 10-year T-note contracts as August drew to a close (just as yields were bottoming) and have since closed out their positions and are now flat — this should help eliminate one recent source of selling pressure.