The selling of stocks will be “immense” over the next few months as treasury prices are set to take “a hammering,” one analyst told CNBC on Tuesday.
The start of the global stock rout last week was blamed, to an extent, on inflation fears that pushed up Treasury yields and drove down stock prices.
On Monday, the Dow Jones industrial average dropped 1,175.21 points to close down at 24,345.75, having briefly declined more than 1,500 points during the session.
Shortly after the opening bell Tuesday, the Dow had fallen 250 points, pushing its three-day losses above 2,000 points. Within 30 minutes, the Dow had erased all those losses to sit 300 points higher.
Jason Ambrose, CEO at Vanda Securities, said Tuesday that a recent flight back to treasurys does not mean a twin sell-off in bonds and equities is over.
“I think that is a temporary respite. I think that U.S. treasurys can take quite a severe hammering over the next two or three months,” he said.
Ambrose said he saw no obvious demand for U.S. treasurys and their price would surely fall as supply increased.
“You’ve got $508 billion dollars of issuance coming from a roll-off or from new issuance as the Trump administration tries to put a fiscal plan into place,” he said. “The domestic demand has been quite sub-par and I just don’t see where these buyers are coming from.”
Ambrose said he expected a firm steepening of the yield curve and that equities would witness “an immense draw” over the next couple of months.
The analyst added that retail investors and active funds had been in the 95th percentile long, meaning there was no cushion for falling markets.