Seasonality starts now

The seasonal trend is about to begin here, according to Equity Clock. The VIX bullish seasonality is expected to fade from this point.

Source: Equity Clock

The Treasury futures have shown a significant upward movement, although the negative trend remains. It is worth noting that we did not test the lower part of the channel this time. The first resistance to watch is the 21-day level. If it closes above this level, the upper part of the channel highs will come into play. The 50-day level is still much higher, but we may see some painful reversals in yields.

Source: Refinitiv

JPMorgan predicts that yields will move lower from here. Their main points are:

1. Despite the rise in oil prices potentially pushing inflation, JPMorgan believes that the current rise in bond yields is not sustainable.

2. Historically, there has been a positive correlation between oil prices and bond yields. The recent surge in oil prices is mainly due to supply reasons, which could lead to deflation.

3. Looking at the past eight Fed tightening cycles, bond yields have decreased after the final hike, on average by 100 basis points.

4. Current bond yields are trading above both inflation forwards and expected levels.

Source: JPMorgan

Things could become dynamic quickly in terms of bond convexity.

Source: Goldman Sachs

According to Jefferies, when the 2-year to 10-year yield spread is negative, moving higher, and driven by the long end, performance is typically poor. There have been around 240 instances of this across nearly 12,000 trading days, with many occurring in the current cycle. Not only has short-term performance been negative on average, but it also takes a while for the market to recover, with performance over 12 months averaging just 4.3%. These instances tend to occur closer to recessions, which further impacts market recovery.

Source: Jefferies

CTAs aggressively sold off oil last week, causing frustration in the market.

Source: Bank of America

Oil volatility has experienced a significant increase, with the OVX going from 24 to 40 in just a few weeks.

Source: Refinitiv

The tightening of US financial conditions over the past few months has been severe. A 25 basis point tightening in financial conditions is approximately equivalent to a 25 basis point rate hike.

Source: Goldman Sachs

The usage of the three "magic fat pills" has significantly increased over the past 18 months.

Source: Bernstein

For more market intelligence and thematic trading emails, sign up for ZH premium here.