The bond market does not believe that the reduction of the Fed was done once and for all: strategist

The bonds can simply be against the Fed.

US Treasury yields have fallen since the US Federal Reserve applied its first interest rate cut for more than 10 years on Wednesday, as the 10-year yield hit its all-time low in November 2016 on Friday.

This is unusual, given comments from Fed Chairman Jay Powell on the discount, which sees it as a "mid-cycle" measure to protect against emerging "downside risks" rather as the beginning of a reduction cycle.

Still, "the bond market remains vigilant" in his idea that the Fed will proceed with several additional cuts by the end of 2020, which creates a "bifurcation of financial markets", Paul Ciana, chief technical strategist of FICC at Bank of America Merrill Lynch, said Thursday on CNBC's "Futures Now."

"The bond market here is trying to base returns and the possibility of a sale to see 2-year yields rise and react to the Fed less dovish, but bond market players remain somewhat resilient," he said. -he declares. , referencing a 2-year US Treasury yield chart.A flawless stay

If we take into account the retracement of 10-year Treasury yields from November 2016 levels, it is clear to Ciana that "the bond market remains vigilant, they do not necessarily believe in convergence at the end of the year." present time, "he said.

It is interesting to note that the market that has accepted the Fed's less accommodative positioning – which is clearly demonstrated by Powell's refusal to guarantee further rate cuts and its declared dependence on economic data – is that of the US dollar, said the strategist.

"The market that believes more in convergence [of the U.S. market and the Fed’s messaging] It's the dollar, because if the Fed delays its future increases or becomes less and less dovish, the value of the dollar should appreciate as the markets look for this carry trade, "Ciana told CNBC in a phone call Friday.

A carry trade is a strategy in which an investor borrows money when interest rates are low and invests in an badet offering a higher return on investment.

"The technical landscape is where the market buys dollars," Ciana said. "The market and the world want US badets, they want the US stock market, they want the US dollar and they want US bonds."

And, "if the Fed becomes less and less dovish, it will continue," he said. The dollar collapsed Thursday and Friday after the Trump government announced that it was preparing more tariffs on Chinese products after peaking on Wednesday.

In this context, Ciana had recommended trading the euro-dollar index at its level of Friday at 1.1, which he described as "an ideal selling point for the rest of the bearish trend of the year." 39, euro-dollar. " [which could] potentially [fall] as low as the French election gap at around 1.08. "

Regarding Treasury yields, however, Ciana has not found any great security in these transactions.

"Like this [trade] The story is changing, we are constantly reviewing our medium-term objectives, "he said in Friday's telephone conversation with CNBC, adding that a 1.85% yield on the 10-year Treasury" is all about makes sense. "trading Friday around 1.85%

"If the Treasury yields do not reverse quickly, the conversation must start to flow, the absolute lows break and we move to 1%?" Ciana warned.

The S & P 500 and Nasdaq Composite indices ended their worst week of 2019 on Friday.

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