Bond Shorts Burned After Tech Selloff Reignites Treasury Rally
Bond Shorts Burned After Tech Selloff Reignites Treasury Rally
(Bloomberg) -- Newly minted bond bears got a harsh lesson in market timing on Tuesday as a precipitous drop in technology shares sent investors in search of havens.
Short interest as a percentage of shares outstanding on the $17.2 billion iShares 20+ Year Treasury Bond ETF, ticker TLT, jumped to 9.8% from about 4.4% from the start of last week, according to data from IHS Markit Ltd. That’s the highest level since 2018.
The uptick in bearishness came as TLT sold off by the most since June on Friday, only to rally by the most in two months on Tuesday. While last week’s tech rout could be chalked up to pricey stocks working off “froth,” the market mood has turned decidedly risk-off as the equity plunge deepens combined with U.S.-China tensions climbing, according to Principal Global Investors.
“If the tech rout was due to stronger growth and a rotation into cyclicals, Treasuries would be selling off right now,” said Seema Shah, chief strategist at Principal Global Investors. “The fact that they are rallying suggests the tech rout has to do with fundamental concerns about geopolitics and global growth.”
Yields on 30-year Treasuries dropped by as much as 9 basis points on Tuesday, after closing 11 basis points higher on Friday. The Nasdaq 100 slid as much as 4.3%, while the S&P 500 fell to a four-week low. Bank stocks, which had outperformed on Friday as yields rose, were among the day’s biggest laggards.
Tech stocks have largely fueled the equity market’s rebound from March lows, pushing the relative strength of the Nasdaq over the S&P 500 to the highest on record last week. Against that overvalued backdrop, any developments that could harm global growth -- such as President Donald Trump’s pledge to end America’s reliance on China -- could send shares sliding, Shah said.
“At these market valuations, any factor that has the potential to disrupt the global growth outlook is going to send investors rushing for safe havens,” Shah said.
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