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Dave Rosenberg draws our attention today to the fact that the supply of long-term Treasury bonds is at a 30-year low (as evidenced in the chart above). Long bonds now make up less than 10% of all the Treasury debt outstanding. In addition to the very limited supply picture, demand for these bonds should remain relatively strong considering China's continuing interests and baby boomers' needs in terms of a reliable retirement income stream.

In addition, sentiment is skewed fairly bearish toward long bonds right now. “It’s rather amazing that the asset class that delivered the greatest returns in the past decade is the one that is most detested. We just saw the JP Morgan survey of fixed-income investors. As of February 8th, a mere 10% were bullish — down from 16% a month ago — and 27% are bearish (63% are neutral). A month ago, 22% were bearish on bonds,” Rosenberg writes.

Fundamentals and (contrarian) sentiment, then are lining up with bullish technicals. And if the Eurozone fears or speculation of a trade war with China prove well-founded, the “flight to safety” trade could easily inspire a renewed bull move for long bonds.

Disclosure: long TLT

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