Multi-Asset Essentials

Bond sentiment & positioning wrap ahead of the Fed                    

We’ve yet to see the same breadth of ‘tactically oversold’ signals on major bond markets from ASR’s Sentiment Barometer Indicators and option skews that we did in June ahead of a 6-week bounce. On CFTC positioning, only the UST 2y net short is near an extreme. 

An option strategy allowing for one final rise in yields                

US breakevens have fallen with CRB RIND; the ‘problem’ has been real yields and recessionary leading indicators may not be enough near-term to fix this. Nominal GDP proxies need to slow more. Suggest selling Q4 OTM TY puts to fund ’23 calls.   

Indonesia still among better-placed EM bond markets                    

Several factors help explain EM local currency bonds’ relative resilience in 2022, including real yield buffer (see chart below), steeper curves and smaller inflation shocks. Indonesia continues to tick a lot of boxes for EM bond investors.   

Multi-Asset Essentials