Bank of America Merrill Lynch - "The growing disconnect between US rates and the US stock market suggests that US rates (and the USD by extension) may have more at stake in how the weather story plays out. We believe, once data begin to improve with the weather, Treasury yields and the USD could snap higher in a relatively short space of time.
To place the severity of this winter in historical context, we have developed an Extreme Winter Weather (EWW) index using state level data going back to 1960. Our analysis suggests that this winter is the 3rd most severe, just behind 1977 and 2009. This finding strengthens our view that the weather has played a major role in the recent soft patch.
1977, 1978, 1995, 2009 and 2010, identified by our EWW index as especially severe winters, offer key lessons to investors wanting to trade turning points in the data. The median difference between Q2 and Q1 GDP growth in these winters was 4.5pp. The pattern of this winter most resembles the 2009-10 winter, which saw 10y Treasury yields and USD/JPY moving up 20bp and 5 big figures in March.
We continue to stand by our higher US rates and higher USD calls for 2014. We would urge clients to use any near-term rally in Treasuries and sell-off in USD/JPY to initiate short Treasuries and long USD/JPY positions. The fact that positioning is much cleaner now implies that risk-reward of these trades has improved."