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U.S. Treasuries: “Most Crowded Trade.” Too Crowded?

Here's a perspective on the bullish sentiment

by Bob Stokes
Updated: June 20, 2019

Let's state right off the bat that sentiment measures are not precise market turn indicators.

However, they are highly useful because when they reach extremes, an investor has a good idea that a trend is not just beginning. And, in many cases, has even extended well past the midway point.

With that in mind, let's take a look at the sentiment toward U.S. government bonds.

Our June 17 U.S. Short Term Update showed this chart and said:

BondOptimism

[30-year T-bond futures] have rallied back toward the 155^01.0 high from June 3. The move since this high is not a triangle pattern but it is a sideways trend.... Bond DSI (trade-futures.com) rose to 93% in conjunction with the June 3 high, it pushed to 90% along with the next upward spike on June 7 and it nudged 88% coinciding with last Friday's high.... Bullish sentiment remains elevated.

The next day, on June 18, CNBC ran this headline:

Government bonds are now the 'most crowded' market trade, more popular than technology stocks

That headline is derived from the latest monthly Bank of America Merrill Lynch Fund Manager Survey, in which around 200 global fund managers participate. This is the first time that Treasurys had the highest percentage ranking as an investment preference in that survey.

Relatedly, our June 14 U.S. Short Term Update noted that:

SentimenTrader.com reports that mutual fund flows into corporate bond ETFs rose to a near record over the past eight trading sessions.

Of course, this shows that elevated bond-market optimism extends beyond Treasuries.

The question is: Is the bond market nearing a peak, or do chart patterns suggest that sentiment may climb even higher before investors should expect a turn?

Our Short Term Update addresses this very question.

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