Wall Street closes at a record for the first time since end of January
Investing.com -- Bank of America analysts said rates appear oversold despite the current oil supply shock showing similarities to the 1970s, when duration rallied over three and six-month periods.
The near-closure of the Strait of Hormuz has created strong parallels with the 1973 and 1979 oil supply shocks, according to the bank’s analysis. A clear majority of respondents to BofA’s FX and Rates Sentiment Survey, at 64%, expect oil prices to average above $90 over the next three to six months.
Unlike the 1970s, rates have sold off across the curve in response to inflationary pressures. The S&P 500 rallied in 1979 and has generally traded higher over three and six-month horizons in wartime oil shocks where duration rallied, the bank noted.
BofA’s positioning data suggests investors have been selling across the curve, with positioning lighter than previous levels. The bank recommends buying SOFR M8 futures in the US front end, where rates look especially elevated relative to their trajectory in price spikes since 1988.
In the long end, the bank prefers buying 10-year Australian government bonds and 10-year German Bunds.
Since Brent oil futures contracts were first traded in 1988, oil price shocks triggered by wars have often been short, with half of shocks persisting for fewer than 26 weeks. The oil price surge from the first Gulf War ended after 25 weeks.
US equity performance has been lower than average for the past 10 weeks in which oil has traded above its 52-week moving average.
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