US Treasury notes may be near turning point, Unicredit says

Unicredit’s proprietary fixed-income trading models were pointing to excessive pessimism and close to reaching a ‘trigger’ for going ‘short’ US 10-year Treasury notes, the lender said on Thursday.

The bank’s proprietary Laubach-Williams-based short-term model had not yet reached a first trigger level to shorten duration or ‘shorting’ Treasuries outright, but was close to doing so, Unicredit’s head of fixed income, Michael Rottmann, said in a research note sent to clients.

Another signal from the model – which calculates ‘fair value’ for 10-year Treasuries using the ‘natural interest rate’ and various inflation measures - was that pessimism might have reached excessive levels at this point, the strategist added.

At 1.38%, the lower bound for the model was close to an all-time low and had already undershot the prior troughs hit at the end of 2008 and near the readings reached in early 2015, he explained.

“Both occasions marked the end of the sell-off in 10-year US Treasuries. This might be an interesting aspect for counter-trend-driven investors.”