As mentioned earlier global markets have really started to lose confidence in a strong and sustainable global economic recovery. Overnight we saw fears grow that the Delta strain of COVID, plus what variant may come next, are going to alter the preconceived very optimistic path out of the pandemic that many had been expecting since the vaccine breakthroughs. However at this stage we feel markets are simply moving to a new level of equilibrium after getting way too ahead of themselves without considering the risks of a mutating virus, importantly ultimately we believe the sharp appreciation in yields in early 2021 will prove correct but rarely do markets go up in an uninterrupted fashion.
- MM believes the current concerns around COVID is providing a buying opportunity into the reflation thematic i.e. buy bond yields and the $A.
- Also the current sector rotation rolling through equities should provide solid buying opportunities into the banks and resources.
NB MM has been looking for a pullback in bond yields to start building a position in the ProShares Short 20+ Treasury ETF (TBF US) which rallies when bond yields do and vice versa.
MM is close to pressing the accumulate button towards US bond yields
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The European Central Bank (ECB) helped push bond yields lower overnight as they changed their inflation target for the first time in 20-years enabling the central bank to hold interest rates lower for longer in the face of rising inflation. History tells us this may prove a dangerous game but for now all we need to remember is that short-term rates will be anchored at lower levels in Europe for years to come with longer dated yields more likely to rally on sniffs of inflation.
