©2025
Bianco Research, L.L.C. All rights reserved.
This material is for your private information, and we are not soliciting any action based upon it. This material should not be redistributed or replicated in any form without prior consent of Bianco Research. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.
|
|
|
|
|
The longest risk-off cycle since December 2016 marches on, now at 37 trading days. Treasuries have underperformed versus typical risk-off cycles.
Comment
U.S. Treasuries are underperforming as the current risk-off cycle stretches to 37 trading days. We use the BofA Merrill Lynch global flows index, a measure of fund flows and volumes between safe and risk assets, to identify risk-on and -off cycles. The present period of risk-off flows began September 21 and is the longest risk-off cycle since December 2016.
U.S. Treasuries have underperformed versus the typical move. The next chart shows changes in the U.S. 10yr yield during risk-off cycles since 2000. The current cycle is highlighted in orange, the median change in the thicker gray line.
This time has been different, the 10yr yield is +12 bps versus a median change of -22 bps. Only two other cycles that lasted 37 trading days saw yields rise as much. One, highlighted in blue, saw yields soar after the 2016 presidential election. The other was a period from March to June of 2004. The next month of persistent risk-off cycles has been kind to Treasuries. The median change falls another 20 bps by day 60.
Unusually strong preferences for short-term safe assets have been the differentiating feature of risk-off in 2018. We have more discussion of market moves after extreme risk-off flows, and our expectations for Treasuries and the yield curve, in our Weekly Roundup.