A reset has occurred in the bond markets with sentiment going from extreme pessimism - expecting higher yields, back to the opposite side with the bond sentiment indicator now showing increasing expectations of lower yields. The chart below appeared in the latest edition of the Weekly Macro Themes report alongside some longer-term indicators on the US bond market.
The bond sentiment indicator incorporates bond mutual fund flows, speculative futures positioning, bond market implied volatility, and global sovereign bond market breadth. When the indicator moves to extremes it often marks turning points in bond yields. Now that the indicator has moved back to the low side, the risk of another jump in bond yields is higher.
Callum is Head of Research at Topdown Charts. Topdown Charts is a chart-driven macro research house covering global Asset Allocation and Economics.