Over the past 13 weeks, U.S. commercial banks have purged their holdings of U.S. Treasuries and bonds at almost a 10 percent annual rate, writes David Rosenberg.
The last time they reduced their holdings in such large quantities over such a short period of time, was in late 2007. This, was "just ahead of one of the great bond rallies in recent history."
With that in mind he tells investors to watch as banks "scramble now to gobble them back up – and recall their timing."
He goes on to say that the Great Rotation (a rotation out of bonds and into stocks) was a Great Hoax:
"We could, in fact, start to see a shift back into bonds because credit demands are starting to slow – the 13-week rate of change in total bank loans has weakened to 2.7 percent annual rate from over 4 percent a month ago, and over six percent at the turn of the year.
Moreover, this "Great Rotation theme has really turned out to be the 'Great Hoax'. While retail investors did indeed plow $3.8 billion into equity mutual funds in the past week, on top of $5 billion the week before that, bond funds also took in a new $4.5 billion in addition to $6 billion the prior week. What sort of rotation is that? Bond inflows are matching equity inflows tit for tat."
All this, Rosenberg thinks should be a major source of support for the bond market.
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