Jefferies 'bullish' on energy after US Treasury curve steepening

Equity strategists at Jefferies upgraded their recommendation for Energy stocks to 'bullish' on the back of the shift higher in the US Treasury yield curve over the preceding week.

Last Friday alone, the yield on the benchmark 10-year US Treasury note had climbed by 13 basis points to 1.90%, bringing it full circle after losing that level on 2 August, after the US President announced his decision to levy a 10.0% tariff on another roughly $270.0bn of Chinese-made goods.

That announcement saw 10-year yields close low as 1.46% on 3 September.

That steepening move in the US government bond curve coincided with a "significant" rotation in sectors and risk appetite, the strategists said.

It also came alongside the first net fund outflows from fixed income and into equities.

"We believe the markets have become overly Bearish about the cycle. We upgrade Energy to Bullish, downgrade Consumer staples to Bearish and remain wary of REITs," Jefferies said.

"Interestingly, the change in sentiment was not necessarily accompanied by any notable macro data point or news item. Simply, risk aversion became so well entrenched that a ‘tipping point’ has occurred as perceptions of risk and macro data concerns ‘became less bad’ in our view."