BofA: Sell-Off Challenges Consensus Longs And Raises Fear Of Over Crowded Trades

In light of their most recent client survey Bank of America note that “the resilience of the U.S. economy is allowing the curve to bear steepen in a reappraisal of term premium and neutral rates.”

• “Positioning adjustments - capitulation on out-of-the-money longs - by real money investors did not play a meaningful role in the summer's bear steepening of the U.S. curve.”
• “Consequently, investors are concerned about their duration positions, with sentiment more bearish than positions and duration longs back to being perceived the most crowded trade. The real money community though remains firm in its overweight U.S. rates positioning despite challenged views.”
• “With large position adjustments outstanding, this does leave consensus longs vulnerable to further positive data surprises and points to continued upside risks in rates.”