Sunday, March 21, 2021

"Asset duration beginning to show up in the data"


Those equities that are generally believed will produce cash flows off into eternity have been whacked. [technical term] Here's the MicroSectors FANG+ ETNs due January 8, 2038 ETF (FNGS)


And the components of the underlying index:

  • Facebook (FB)10% 
  • Alibaba (BABA)10% 
  • Apple (AAPL)10%
  •  Baidu (BIDU)10% 
  • Amazon (AMZN) 10%
  •  NVIDIA (NVDA)10%
  •  Netflix (NFLX)10% 
  • Tesla (TSLA)10% 
  • Alphabet (GOOGL) 10%
  • Twitter (TWTR)10%

Very straightforward. Complete with a triple-levered inverse ETN on offer should your tastes lean in that direction. 

And the source of the headline quote, Upfina, March 19:

Historic Selloff In Treasuries

In the past few months many have said the treasury market was oversold. That was irrelevant because the long bond yield had a fundamental reason for increasing. Imagine if a stock gets a buyout offer and it spikes. No one would short that stock because it is technically overbought. You’d only short it if you think the buyout offer won’t go through. Technical signals generally shouldn’t be the only reason you make a trade.

As you can see from the chart below, this has been the 3rd largest year to date drop in the long bond since 1973. That includes a period with spiking rates. This move has now gotten historic. Don’t get too excited though because the timing of selloffs matter when you’re looking at year to date numbers. It’s random that the confluence of events leading to the selloff in treasuries occurred at the end of last year and the beginning of this year.

You need to decide how much room the trade has left. If you think the 10 year yield can go to 2%, why fear a 10 basis point drop because the long bond is oversold? If anything, you should add to the trade if the yield falls enough when it corrects. On the other hand, if you think the 10 year yield peaked, any short term down move is problematic. You should exit the trade now. This scenario example essentially explains how the near term price action of an investment is irrelevant if you don’t plan on selling. However, it is everything if you want to sell. 

Factor Movement For Dummies

You can pretty much tell by looking at a stock’s chart whether it is a long or short duration play. There aren’t many stocks that aren’t on one side. Fundamental investors are getting very impatient with the action because for the past few months, actual company performance hasn’t mattered. The only thing that has mattered is how it does with rising rates....