BOSTON, Sept 5 (IFR) – The markets (and European banks) appear to be starting to call the ECB’s bluff that their contemplated additional easing measures will amount anything more than a hill of beans. Indeed, it’s been five years since the ECB went into negative funding rates and four years since the start of their large scale asset purchases and the European economy (along with its asset markets) better continue to spin their wheels.

The ECB’s doing something for the sake of doing something appears to be a case of diminished returns if not a losing proposition. Central banks seem to appreciate this as they put their monetary policies up for “review” with incoming ECB President Christine Legarde saying that this was her intention as well as it concerns negative interest rates and large scale asset purchases.

If so, a case can be made that the various global sovereigns and especially European sovereigns, but treasuries as well, are way over their collective buying skis. Some are already heading for the exits with the 30-year German bund yield higher by 11 bps on the session and near 20 bps over the last week. The risk is that this selling begets more selling. With treasuries deemed an optimal hedging vehicle (for its liquidity characteristics) it would be reasonable to see further hedging pressure come into the belly to long-end of the treasury curve.

We will look to re-short the 5-year after the pending ISM-services print (10:00). Best bet; be defensive and a seller of strength.

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