What the US Treasury strip tells us about sentiment

NDR make the case that the behaviour of corporations to buy Treasury strips for underfunded pension plans may tell us something about rates sentiment. This was most recently observed before the September 15 funding deadline, where they showed that the demand for strips had increased, and that the spread between the 30-year strip yield and the regular bond had shrunk to 1 bp. Following the deadline the spread widened out again, and the curve steepened. The larger point NDR attempt to make in this note is observation of the correlation between yields and the demand for bonds held in stripped form. For instance, when yields were over 5% before the financial crisis, the stripped share climbed above 30% at one point. That share plunged to a record low 11.7% in May 2016, two months before the low in yields.  The yield surge during the taper tantrum of 2013 lacked bullish long-term conviction, as the stripped share drifted lower.  Although yields have picked up,  the stripped share remains historically low, suggesting that long-term investors expect higher yields, say NDR.