US-CAD 10y differential

US-CAD 10y yields differential corrected too much too fast and stands at 26bps
Largest straight decline in 5yrs moving 57bps in the last couple weeks

We see a similar picture in CAD 2y yields differentials and CAD currency

Below is the 3months Libor/OIS spread showing some more stress in the system

The recent move was therefore justified by many macro variables, heating housing market, higher credit risk, a bounce in commodity markets...forcing a change in monetary policy with central bank raising rates
This is confirmed by my global macro model.
Long term model targets a 10y differential at 29bps so pretty close to current 26bps market level, while shorter term model shows a spread at 38bps.
So if short term dynamics are stretched, Z-scores measures are not at less than 1 standard deviation

I still believe move was too fast and worth buying 10y CAD vs 10y US into US supply next month for  trade.

Summer trades

Commodity complex active again grains bouncing sugar, cocoa, coffee to name a few (commercial hedgers long and reducing shorts so producers willing to take the risk for higher prices), iron ore, wheat already advanced...should continue to benefit EMG and commodities oriented markets and currencies (AUD breaking multi year trends above 0.77) vs developed (where stock markets are stalling with some hiccups in china, auto loans in US...)...
Trend should be most beneficial to Brazil, MXN, Vietnam, Indonesia, and watching Nigeria carefully before it picks up momentum despite 14% inflation (commos, lower prediction inflation 11%, amazing demographics and heavy investment from china should do it)

In the rates space bouncing off multi year supports across G4, put 2/5 and 2/10 flatteners back on, receivers, swiss/euro short rates at the tight for an RV punt (ESZ8/ERZ8),

Euro above 1.16 might be the only "consensus" trade working

Factor investing mania

Returns seem to be inversely proportional to inflows into factor based strategies

Factor investing in the news reached a high last quarter

(Google trends)

Below graphs (courtesy ab insights) show crowed hedge funds factor bets (equities) started underperforming in 2011 and accelerated since 2015

Meanwhile stock picking has done better since late 2015

For other asset classes we see similar trends with CTA inflows the highest in 2016 and poorest performance in the last 15th months

Many reasons are coming out for the underperformance of factor investing and more broadly quant strategies, some you can find in a recent article by Neal Berger https://www.linkedin.com/pulse/turmoil-quant-land-hedge-funds-candid-view-why-strategies-knab
Obviously not all factor investing is done properly and quant strategies mean many things so ask more questions as you allocate.

Now, global macro and discretionary has bad press recently, I wouldn't be surprised to see them outperforming from here as central banks and regulatory environment is taking a back seat, and discretionary traders start using the enormous new open source techniques at their disposal.

This can't be too inflationary!

Banks excess liquidity (plentiful) and inverted M2 velocity (weak),

Indicators show Banks are still shy lending and the monetary base multiplier the weakest in years, add to that depressed real disposable income + productivity  and contained inflation makes perfect sense despite massive liquidity infusion by central banks.
The financial assets vs real assets debate still on.
We need a turn around in these measures for bond bears to gain more momentum.
Central banks and regulatory environment finally taking a back seat is slowly starting the process to higher yields, let's watch consequences on banks and employers behaviors.

Are we already in a bond bear market?

Chart below shows the logarithmic total return for the 30yr bond, (I built the trendline using traditional touch points but in this case chose ones that match economical events ie lows of 2000 and 2007), chart confirms

- Bond bear market started in 2013 (Taper tantrum),
- Retested the highs (twice) like it often does (30+yr trends/pendulum swings don't reverse at once, it's like a big ship trying to get to a stop and reverse course),
- Never got back above trend
- Making lower highs from here

Now to be fair (always question charts you receive), the outright yield level still tells you the bull market is intact (now outright yield levels only tell half the story, missing coupons and carry) so Total Return is in my opinion a better measure. Now if you look at a line chart of the total return series, the 30+yr bull market is still intact, so which one to believe line chart or logarithmic? I tend to use logarithmic charts to analyze returns across time (geometric returns) and simple line charts (arithmetic returns) for underlying securities or for portfolio aggregation.