Get started

T-bonds

Bitcoin Has Absorbed $26,500 but What's This?Traders, In my last post I stated that BTC must absorb the price of 26,500 for the bulls to come back out and play again. It did. Now, we are running into the 50 day moving avg. which is acting as resistance and should give those of us seeking re-entry into longs a bit of time to make those entry decisions. However, I spotted something sus on the U.S. treasuries chart and it seems that nobody is really talking about this. Both the 10yr and the 2yr experienced a massive spike! What caused this? TBH, it is causing me some hesitation. Could this be pre-indicative of a credit event of some sort? Thoughts, links, data are appreciated in the comments below. Stew
INDEX:BTCUSD
by stewdamus
MACRO MONDAY 12 - Positive MOVE IndexMACRO MONDAY 12 A Positive MOVE Index - TVC:MOVE The U.S. Bond Market Option Volatility Estimate Index – the “MOVE” is similar to the VIX volatility index that lets us know when volatility/uncertainty is high or low in the stock market by monitoring options contracts. Instead the MOVE measures how much investors expect bonds prices to fluctuate in the future. The bond market is particularly sensitive to changes in interest rates thus the MOVE also can also advise of expectations of future interest rate volatility. The MOVE index calculates the implied volatility of U.S. Treasury options using a weighted average of option prices on Treasury futures across multiple maturities (2, 5, 10, and 30 years). It reflects the level of volatility in U.S. Treasury futures. When the MOVE Index is high, it means investors are worried and expect big price swings, which can be a sign of uncertainty or instability in the financial markets. When it's low, it suggests that investors are more relaxed and don't anticipate significant price movements. In essence, the MOVE Index helps us gauge how jittery or calm the financial markets are by looking at the expectations of future price changes. The MOVE Index can help inform us of the following: 1. A potential flight to safety: When the MOVE or Bond Option Market Volatility increases this can be a signal of a flight to safety as people exit riskier assets positions such as stocks and reallocate funds to less riskier government backed assets such as Bonds. - The chart illustrates that increases in bond volatility negatively impact the S&P500. 2. Future Interest Rates: By capturing investors’ expectations of potential future fluctuations in interest rates, the index serves as a proxy for the bond market’s overall sentiment regarding future interest rate movements. - The MOVE can provide insights into the bond market’s expectations about future interest rate volatility, thus providing a heads up of upcoming change to future interest rates. The importance of the MOVE index lies in its ability to provide insights into the bond market’s expectations about future interest rate volatility and market volatility. The Chart With an understanding of the MOVE Index we can now dive into the chart and the implications we can draw from it; - Above the 85 level is above average bond market volatility and below the 85 level is below average bond market volatility. - Historically when the MOVE Index increases higher than the 126 level it has resulted in significant S&P500 price decline (red on chart). - Conversely when we are below the 126 level this has corresponded with positive price action for the S&P500 the majority of the time (green on the chart). This makes sense as a MOVE below the 126 level would suggest the bond market volatility is reaching down to the average 85 zone or under suggesting stable financial markets with moderate bond & interest rate volatility expected. Under such circumstances there is certainty and an element of calm in financial markets allowing for capital to flow more freely into riskier assets (instead of the safer bonds). - When the MOVE Index falls back into the 126 – 100 zone (orange ) this zone has been a zone of indecision with a potential increase and bounce back out of the zone higher or a fall lower. I would consider this a zone a wait to see what happens next zone. - At present we appear falling into 100 – 85 level (green zone). Should we fall below the 85 level this could be considered a confirmation signal of stability returning to the bond market which could lead to a flow of capital to riskier assets such as those in the S&P500. In the period from 2007 – 2009 during the Great Financial Crisis bond volatility remained elevated above the 126 level for approx. 23 months (in the red zone on the chart) and this consisted of three peaks in bond volatility that reached a high of 265 on the MOVE Index. At present we have had 16 months of increased bond volatility reaching in and out of the 126 red zone. Similar to 2007 – 2009 period we have had three peaks in bond volatility however we only reached a high of 173 (in 2007-2009 it was a high of 265). We are currently moving back down towards the 85 level and this appears to be positive for markets however I would remain cautious until we make a definitive move below the 85 level. We are aware that bond volatility can remain elevated for up to 23 months and we have only been elevated for 16 months and did not reach the highs of 265 like in the 2007 – 2009 period. The chart does not have to play out the same, reach the same levels or follow a similar time pattern as the 2007 – 2009 period however we are aware that it can move higher and that it can remain elevated for longer therefore we can remain cautious until the volatility moves under the 85 level (below the historical average). Its hard to ignore that this chart looks bullish for the market as we move down into the green zone and into lower bond market volatility. This creates a stark argument to some of the charts I shared in previous weeks. I would be more comfortable in confirming the bull thesis from this “one” chart should we move below the average 85 level. Furthermore, it is one chart and for me it would not be enough to rely on alone. I was listening to market guru Raoul Pal this morning and he made an compelling argument to suggest that we are already in the deep trough of a recession and might be about to start climbing out of it. It’s worth considering as recessions are typically declared up to 8 months after they have started and with many countries having already established 2 quarters of negative GDP, we certainly could be in the trough. If there is one chart that would back up Raoul Pals thesis, it is the MOVE Index which is suggesting a move to lower than average bond volatility, suggesting we are potentially beginning to enter a period of stability and certainty which would allow for capital to feel more comfortable flowing towards riskier assets. This chart will be a great chart to keep an eye on for those with a positive or negative market lens. You can press play on the chart on trading view and it will update and tell you if we are moving into low risk levels or high risk levels, you also have boundaries for the extremes. This chart and the others I have completed on Macro Mondays are all designed so that you can revisit them at any point and press play and see if we are breaking new into higher or lower risk territory. I hope they all help towards your investing and trading frameworks. PUKA
TVC:MOVE
by PukaCharts
2
Dark times are coming... - TVC:US10Y is showing significant strength on all major timeframes. - The EMA's on the monthly timeframe broke bullish after 12,000 days (Last seen 1962). - If the US10YR breaks the 50% price retracement, we could see between 7.25% - 15%. (Last seen 1981) The markets are in a scary place right now. This bear market may be extended due to many factors were dealing with in 2023 (War, Virus, Inflation, Rising Interest Rates, Upcoming election, etc...). Maybe a crash is what's needed to reset all of this chaos?
TVC:US10YShort
by iLeverageBTC
DOLLAR against all ODDSWe have DXY pegged for Bullish continuation. I believe DXY is carrying a HTF Momentum to the upside. It has made an incredible recovery since its Ranges Low at $99.578 And it does not seem to be losing steam. I see DXY making some sort of retracement with a possible bounce around $104.561, to continue its path with a series of UP closing candles all the way up to $104.790 and the possible yet far $104.480. Why is this important? DXY upwards continuation will affect all assets including forex and equities. For example: I determined NASDAQ Bearish inclinations based on the Dollars path. See: This is not only going to translate to NASDAQ but as said above it will affect all. There will be more ideas linked to this particular movement. Stay tuned!
CAPITALCOM:DXYLong
by JP_Tru
$TX 10Yr has done well while short term yields stagnant, oh ohIt's important to keep and eye on the 10 & 2Yr yields. The inverted #yield curve has huge prediction probability. BUT The strongest aspect of this is when it normalizes. We're not far from that as the10yr has been pumping and the shorter time frames have been pretty stagnant. Now, there's 2 ways this happens. Soft landing, economy slowly recovers OR Lower rates, usually = consequences Guess which is the historical? TVC:TNX
TVC:TNX
by ROYAL_OAK_INC
$TNX, 2Yr Yield, $DXY, $VIX analysisThe 10Yr - TVC:TNX and the 2Yr #yield have held pretty steady the last few days. Won't be shocked if it doesn't do much until the DJ:DJI & TVC:NDQ , "coincidentally", break out of the patterns we've spoken about. TVC:DXY losing a lil bit of steam. Is it topping again? The only odd man out is the $VIX. It's closer to the lower end of range. IMO this is just something to look at and not of much use until it is. September will go out with a BANG!!! One way or another!
TVC:TNX
by ROYAL_OAK_INC
This chart pattern suggests yields are going higherUS10Y remains in an established uptrend on the daily chart, and Friday's bullish engulfing candle suggests a swing low has formed and more gains are to follow. But having looked back at price action since the April low, we note that prices are yet to break the low of a bullish engulfing candle if it has formed after a pullback or period of consolidation. Granted, there are one or two of those engulfing candles that do not fit the exact description (as an open or close is out be a few ticks, meaning it has not truly engulfed). But we've relaxed the rules to note bullish candles that show clear range expansion over the prior candle. And if that pattern persists, it looks like the 10-year yield (and likely yields across the curve) are at least going to make an attempt to retest or break their cycle highs.
TVC:US10YLong
by CityIndex
US10Y Rejection not confirmed yet. Bullish unless this breaks.The U.S. Government Bonds 10YR Yield (US10Y) is having a 2-week rejection since the August 22 High that was priced marginally above the 4.336 Resistance. However both the 1D MA50 (blue trend-line) as well as the Higher Lows trend-line that moves just below it, remain intact, maintaining the long-term uptrend. Today is the ideal spot for a new buy entry, targeting 4.365 (August 22 High). We are only willing to turn short after the price breaks below the Higher Lows trend-line and closes a 1D candle below the 1D MA50. In that case, we will sell and target 3.810 (Fibonacci 0.5 level). Notice also the 1D RSI which just hit its own Higher Lows trend-line that is holding since March 15. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US10YShort
by TradingShot
7
Short-Term Outlook: ZN Bonds will decline to 109.16$.I. Bearish Momentum: The ZN bonds market has recently displayed signs of bearish momentum, with several key indicators pointing towards a potential downturn. One of the most notable factors contributing to this sentiment is the presence of strong seller volume, indicating that there is significant downward pressure on bond prices. II. Seller Dominance: Seller dominance can be a powerful indicator of market sentiment. When sellers outnumber buyers, it often leads to downward price movements. In the case of ZN bonds, the sellers have been in control, suggesting that the short-term bias leans towards a bearish outlook. III. Price Target: 109.16: Based on the current market conditions and the prevalence of seller dominance, it is reasonable to anticipate a decline in ZN bond prices. Our short-term price target is set at 109.16, which reflects the potential support level where prices may find temporary stabilization. IV. Intraday Resistance: 110.31: In addition to the seller dominance, there is a notable intraday resistance level at 110.31. This resistance level acts as an obstacle to any upward price movement and can further support the notion of a downward price trend. Traders should pay close attention to this level as it may provide an opportunity to enter short positions. In conclusion, the ZN bonds market appears poised for a short-term decline to the 109.16 price area, supported by seller dominance and the presence of an intraday resistance level at 110.31. As a bonds trader, it's vital to remain vigilant and adaptable to changing market conditions while implementing effective risk management strategies. The financial markets are dynamic, and staying informed is essential to making well-informed trading decisions.
CBOT:ZN1!Short
by Gassem_futures
3x Inverse TLT ETF: Breaking Out of Descending Broadening WedgeThe Inverse ETF for the 20-Year US Government Bond is currently breaking out of a Descending Broadening Wedge and is looking to go much higher perhaps between the 61.8% and 78.6% retraces which would be about a 500-1,400% percentage gain which also means that longer end bond yields are going much higher. I previously said I would repost this chart after the split so that the numbers would be accurate, and now that split has happened. I have my eyes on the $36 to hold and am currently looking to get some calls for that strike price expiring next year. It's worth noting the Partial-Decline we got before breaking out of the Broadening wedge, which makes it more likely to play out.
AMEX:TMVLong
by RizeSenpai
2
Silver - 33 Moons [And An Options Opportunity](Using 3-Day candles for visibility only. Consult weekly/daily yourself) I have an open call on Gold in that I believe a new high will be set, but it won't actually be bullish, because metals are going to dump pretty hard in the future and try to make retail sell their bullion. Gold - When A New ATH Prints, Will You Get Trapped? I hadn't paid a lot of attention to Silver and was on the sidelines until it dumped 10 percent this week, and now I believe there is a crazy good opportunity. The problem with Gold is that the Chinese Communist Party bought a lot of it and they're going to get margin called or are the ones actually short selling. The problem with silver is that there's not a lot of it left and it's really needed for technology. When smart money wants to buy they accumulate at low prices and distribute at high prices. Often times what precedes the biggest moves are smaller moves that serve the purpose of wiping out and shaking out early short sellers and trapping retail traders who just love to buy high and sell low. There's a lot of geopolitical risk in the world right now, as you can tell from the weekend "Prigozhin Coup," which I cover the implications of for the US Dollar here. DXY - The US Petrdollar And The "Prigozhin Coup" In Russia But the biggest geopolitical risk is what happens if Xi Jinping gets up one morning and dumps the CCP. Nobody believes this can happen and nobody is prepared for it. But when it happens, it will implicate the whole world for both Xi and China to survive, they will have to weaponize the persecution of the 100 million practitioners of Falun Gong committed by the Jiang Zemin faction starting in 1999. Since much of the world's financial sector and governments have dirtied themselves with Jiang in the persecution, when that day comes, it will mean that everything, everywhere is limit down. The liquidity will be gone, the algos will be off. Markets will no longer be made. It is what it is. In the meantime, nothing about what's going on with silver is bearish. Prices are low and it makes you want to sell, but it's actually a situation where you want to go long. I believe that $21.20~ or $20.80 is what it's aiming for, and afterwards, the target will be at least $29. So, what about options? One of the ways you can trade this move is calls on the SLV BlackRock ETF. Getting in at $19~ and seeing a $10 move would push the ETF to at least $30. There are two things that are significant about this: 1. Jan '24 at the money calls (based on the price right now) are $2.21 2. Average Implied volatility is only 24% and the 52W week low is 23.6% and the 52W high is 36%. What this means is that calls are cheap and if iVol were to expand on a bull run from say 26% to 40% you'd pick up an extra ~$1 per contract on top of the strike gains. The AGQ 2x Bull ETF has even more potential upside but it's a lot more risk and the swings are a lot more dramatic, for really obvious reasons. All of this also means you can speculate in mining ETFs and individual miners. You need to use the underlying commodities as your metronome, though. But this also means you'd have to be able to hold a winning position for 3 or 6 months. You'd want to take profits at $27 and $29. But if you get ahead of yourself and buy the $30+ high thinking that $50 and $100 and $500 are coming, you're likely to get seriously hurt. Something is going to happen in this world between now and Q1 2024 and it's not going to be good news for the people lost in delusion wanting to have happy days and be a big baller. Be careful, and happy trading.
COMEX:SI1!
by LordWrymouth
A gold traders’ playbook: how gold could trade into year-endGold has been shunned by investors, but many are now questioning if the yellow metal is nearing an inflection point, for a potential turn, or should we position for further downside. With US growth likely at a peak and as good as it gets, gold longs partly flushed out, positioning paired back and sentiment as bearish as we’ve seen for years, could we be seeing a low? Tactically, I feel it is too early to see a resumption of a lasting bull trend and I am in favour of selling rallies into $1925. However, I am also incredibly enthused by the resilience of gold to ‘only’ decline $100, despite rising US bond yields and a stronger USD. Unless the investment case radically changes – which I lay out below – the risks are skewed for near-term downside, although there is a growing potential for a reversal and strong rally into year-end. The technical set-up Since rejecting the $1981 supply zone on 20 July the ensuing bear trend seems to have hit exhaustion, with gold shorts starting to pair back exposures – there is a risk a short covering could take price into the 38.2% fibo of the $1987 to $1884 decline at $1925, which could offer better levels to initiate swing shorts. Trading intraday has been a challenge for many day traders as volatility has been so low – Gold’s 30-day realised volatility has fallen to 8.3% and the lowest since July 2021. We also see the 5-day average high-low trading range at $14.11; one of the lowest daily ranges for years. Traders need to adapt to these tighter ranges, and many have traded with a tighter stop and increased position size to accommodate for the low vol. One can easily justify these sanguine conditions given the investment case for the bulls has been lacking. For gold to reverse higher these dynamics need to shift. Notably: • The opportunity cost of being overweight gold – market players can get a 5.44% risk-free yield in US 6-month T-bills. Gold has no yield, so in a rising rate environment, gold can often face headwinds. • There is a similar dynamic in the bond market where US 10y-year ‘real’ rates have risen to 2% - again, there is an opportunity cost of holding a yield-less asset. • Gold has been a poor hedge – with cross-asset volatility at such low levels and equity markets recently performing so strongly the need to hedge risk in the portfolio has been reduced. However, funds have favoured the USD to hedge potential equity drawdown given its deep inverse correlation with S&P500 futures. Gold has a positive 30-day correlation with the US500 or NAS100. • The USD effect - Over the past month, the USD has rallied against all G10 currencies – with US data continually coming in hot we see US Q3 GDP expectations sitting above trend at around 2.2% • With US growth above trend, recession hedges have been unwound. We see this in interest rate pricing, with the market pairing back expectations of Fed cuts in 2024 from 160bp of cuts in June to 110bp of cuts. Traders can see the level of expected rate cuts by looking at the spread between SOFR Dec 2023 and Dec 2024 futures (TradingView code - CME:SR3Z2023-CME:SR3Z2024). Gold – another classic recession hedge – has been shunned. Positioning Looking beneath the surface we can see a solid flush out of bullish gold positioning – longs have been paired right back. But has positioning swung too far, and could this offer an entry to look more favourably at upside potential? • Total (known) ETF holdings of gold sit at 90.05m – the lowest since March 2020 having fallen 18% since October 2020. • We see gold positioning in the futures market has been reduced - net long futures positions held by managed money (in the weekly CFTC report) now sit at 29,356 contracts – having been as high as 116k net long contracts in July • CTA (Commodity Trading Advisor – trend-following funds) accounts are max short gold futures but may need to see the price the futures prices above $1980 to start trimming this position. • Gold 1-month option risk reversals (1-month call implied volatility – put implied volatility) sits at 0.07 – the lowest level since March. Options traders are shying away from positioning for upside movement. Are we about to see a turn higher? As Richmond Fed President Thomas Barkin said on 22 August, the US economy could accelerate further, which could hold big implications for Fed policy and challenge the consensus of easing growth and potential rate cuts. While we continue to watch global growth data points, we could also feasibly see US headline inflation accelerate higher in the August CPI print (released 13 Sept) from 3.2% to 3.6%. This could result in increased expectations of a November rate hike (from the Fed), which could lift the USD and real yields. Gold would likely face another leg lower in this dynamic, but would also likely see volatility pick up and trading ranges expand – a more compelling dynamic for CFD traders However, should inflation pick up near-term, resulting in the Fed likely to hike again, it would then accelerate the belief in lower demand and increased recession risk. It is here where expectations of interest rate cuts would increase as higher rates and a higher-for-longer stance from the Fed should accelerate the risk of recession in 2024. If and when we see growth data points subsequently roll over, resulting in additional rate cuts priced for 2024, then gold could feasibly have a strong rally into year-end. As always, an open mind to changes in economics and the subsequent investment case for gold will serve traders well.
PEPPERSTONE:XAUUSDShort
by Pepperstone
1
A Traders’ Week Ahead Playbook; destination Jackson Hole The big market themes last week were trading increased China risk and a resilient US economy with higher US ‘real’ yields (TradingView - TVC:US10Y-FRED:T10YIE ) – the result was broad USD strength and global equity weakness. GBP longs also saw tailwinds from the UK data flow, with GBPNOK the best performing major currency pair on the week – Services PMI could test GBP longs this week, although pullbacks should be shallow. US equity and index options expiry may have played a part in the equity drawdown, with dealer’s net short gamma and delta hedging through shorting S&P500 futures and single stock names. Let’s see how options dealers/market makers deal with this inventory of short positioning/hedges this week, as it may be unwanted - suggesting risk that they buy-back short S&P500 futures hedges (to close), which could cause an early relief rally in equity. Positioning will play a huge part this week and it wouldn’t take much to see US real rates a touch lower, with the USD following in its wake. As the new trading week cranks up, news flow on China will drive and should the HK50 and CNH find further selling interest, then I’d be aligned, with a bias to look at short GER40 trades. The China property sector remains the elephant in the room, with the market finding little tangible fiscal support to reprice risk higher – the price action in the HK50 reflects that, with rallies quickly sold into. It’s time for Chinese authorities to step it up. We get PMI data out throughout the week, but as the week rolls on the attention should turn to Jackson Hole, where Jay Powell takes centre stage. While this forum has been the setting for some bold changes to monetary policy in years gone by, it doesn’t feel like this time around we’ll be treated to such action. The USD remains front and centre this week – biased long, I acknowledge positioning is rich and could easily be vulnerable to profit taking into Powell’s speech. The marquee data to navigate: • China loan prime rate decision (21 Aug 11:15 AEST) – after the PBoC surprised the market and eased the Medium-Lending Facility last week, we should see the PBoC ease the 1- and 5-year Prime lending rate by 15bp respectively. Unless we see the Prime Rate left unchanged, Chinese equity markets will likely overlook any policy easing here and funds should continue to shy away from HK50, CHINAH, and CN50 longs. USDCNH finds support below 7.3000, but few are buying yuan with conviction other than to cover yuan shorts. • Eurozone manufacturing and services PMI (23 Aug 1800 AEST) – the market eyes the manufacturing index at 42.6 (from 42.7) and services at 50.5 (50.9). A weaker services PMI, especially if the data prints below 50 (the expansion/contraction line) and we could see better EUR sellers, with the GER40 eyeing a break of the July lows of 15,500. Tactically warming to EURCAD shorts. • UK manufacturing and services PMI (23 Aug 18:30 AEST) – the market looks for manufacturing to come in at 45 (45.3) and services at 50.8 (51.5). GBP – the best performing major currency last week - could be sensitive to the services print. • US S&P Global manufacturing and services PMI (23 Aug 2345 AEST) – with much focus on China’s markets, US real rates and Jackson Hole, there is less concern about US growth metrics. As a result, the outcome of this may have a limited impact on the USD – it is still a risk to have on the radar. Jackson Hole Symposium – Fed chair Jay Powell will be the highlight of the conference (speaks Sat 00:05 AEST) – again, it’s still premature for Powell to declare victory in the Fed’s inflation fight and will likely emphasise there is still more work to be done. He may also spend time exploring a higher for longer mantra (for interest rates), with a focus on where they are modelling the neutral fed funds rate; possibly one for the PhDs and academics. Powell should re-affirm his view that rate cuts are not in their immediate thinking. From a risk management perspective, I am sensing Jackson Hole/Powell’s speech to be tilted on the hawkish side, and therefore modestly USD positive. Although given the bull run in the USD one could argue a hawkish Powell is largely priced. Other Jackson Hole speakers: • Fed members Goolsbee and Bowman (23 Aug 05:30 AEST) • Fed member Harker (25 Aug 23:00 AEST) • ECB president Lagarde (26 Aug 05:00 AEST) BRICS Summit in South Africa (Tuesday and Wednesday) – It’s hard to see this as market moving and a risk event for broad markets. However, with BRICS countries (Brazil, Russia, India, China, and South Africa) accounting for 32% of global GDP and some 23 countries wanting to join the union, there will be increased focus on their expansion plans. Some have linked the BRICS to an acceleration of global de-dollarization, and while a global reliance on the USD will likely fall over time, the movement is glacial. A common currency for this union – while possibly getting headlines at this summit - is not something that seems viable anytime soon. Key corporate earnings: US - Nvidia report earnings (aftermarket) – many will recall the 24% rally in the share price in Q1 earnings (in May) and hope for something similar. Given the incredible run and heavy positioning, it may need something truly inspiring to blow the lights out. The market prices an implied move on earnings is 10.2%, so one for those who like a bit of movement in their trading. Australia – 68 ASX200 co’s report, including – BHP, Woodside Petroleum, Qantas, Northern Star and Wesfarmers
TVC:US10Y
by Pepperstone
15
As Deflation Hits the Economy The Price of TIPs Should FallEarlier in 2022 I got some Bullish Exposure to Deflation by positioning Bearishly against TIPs (Treasury Inflation-Protected Securities) as can be seen here: Fast-forward to today and we can now see the CPI declining and the TIPs declining even faster, This ETF Tracks the price of these TIPs and we can see that it is breaking through support even though the CPI has only retraced half way. If the CPI continues on this path and the Bond Market continues to price in Long Term Deflation, we should then see the pricing of this TIPs based ETF come down crashing in a big way. If that does happen, I would target at least the 1.618 Fibonacci Extension.
AMEX:SCHPShort
by RizeSenpai
1
US 10-year real rates (TIPS) – the rising true cost of capital US 10YR ‘real’ rates are essentially US 10yr Treasuries adjusted for 10yr inflation expectations – TradingView users can set this up using the equation: TVC:US10Y-FRED:T10YIE. We can see this as the true cost of capital and in effect, the higher yields rise the more this supports the USD and negatively impacts US equity valuations. The rate of change (ROC) is always important, but if US 10yr real rates head to 2% then this may accelerate the selling in the US500 and NAS100.
TVC:US10YLong
by Pepperstone
Is the 2y bond telling us something? HAS THE CRASH BEGUN?Bonds yields have been moving up at a fast pace recently - the 2 year bond yield moved between may and now nearly a full percentage point. Currently at the levels seen around 2008 right before the markets crashed. With real rates on the 3 Month bill actually reaching the exact rate before 08 crisis. One thing I noticed is that the longer end of the curve, i.e bonds with longer maturity have risen at a faster pace as well in the recent weeks. Hedge funds put massive bets in the last few weeks that yields would go higher ( shorting bonds) and I wonder if higher bonds pushing for higher rates is what may be the trigger that puts us into a recession and I do think into a real crash in the stock market. What do I mean? I think that the market has realized that inflation has been going down in many areas as shown month after month on the CPI, PCE and such reports. Although, there are still many areas where inflation exists and does not seem to be going anywhere, such as real estate, energy, and even food. Another big factor here is loan payments, mortgage payments, that people are paying on cars, houses, etc. So people are not saving, people are taking more and more credit as shown recently that we are currently at record levels of credit card debt and the lowest rate of savings in over a decade. The optimism in the market since the start of the year, was so that the market started to be ok with the fact that rates would be going to around 5%-5.5%, and even pricing in rate cuts during 2024- as we all know, the markets are forward looking, so equity prices started moving higher. But after all this, we have reached a point where the market is questioning valuations when we have a good return in "risk free" assets, and with so much concentration in a handful of names bringing great companies at trillions of dollars of market cap but with no where near a reasonable price relative for the risks. Not to mention the soft earnings, yes we beat expectations, but is it really hard to beat such low expectations? if you look at earnings in compared to a year ago you will see that there is hardly any growth and even no growth and lower sales. Back to Bonds- why would yields go up? Fitch downgrading the US credit market is one reason, but not at all the whole story. Sticky inflation could another reason. One major one which I think has been forgotten recently, is the banks. Reginal banks and even more larger banks have on their balance sheets loads of us treasuries, when SVB and First republic collapsed, it showed how fragile the banks are to rising yield rates on the securities they hold. Now that is is happening again, and this time along with longer maturity securities, I think there may be a real crisis waiting to unravel. Perhaps bringing dozens of banks to the brink of collapse. This is something that would be to great for JP Morgan or any other major bank to buyout and save by themselves. On another note The market is showing its concern, for fiscal issues, real problems with the US paying over a trillion Dollars a year just on interest payments. Less income on taxes and much more spending due to inflation. I think the current environment is screaming a lack of trust and wants real returns for the risks in takin on more US debt, so rates are going up. How much higher can yields go without something breaking? I think the 30y mortgage rate at 7%+ currently is going to be another breaking point. Without going to further in the housing market, I will just note that with rent prices at all time highs in many cities, could be a signal that home owners are trying to get a yield on their investment that can cover their mortgage expenses which are rising. Putting the expense on the renter. When it reaches a level where renters cannot pay these amounts that's when owners cannot keep their homes, selling starts. Home owners seeing rates rising ( 10Y bond is the best indicator as most Mortgage brokers use that to calculate rates ahead) can start to panic and sell. So I do think that if there will be a total crash it will happen simultaneously in many markets and will obviously cause major panic and mayhem. This time the Fed wont be able to do much, printing money will be seen as a major fiscal risk and may cause the end of the dollar all together, inevitably a major correction will be needed to reset financial valuations and restore confidence in the debt markets. To summarize, there are definitely cracks, and real risks that seem to outweigh the current reward in the equity markets..
TVC:US02YShort
by LEO_IAMNOTUNCERTAIN_55555
1